The Foreign Account Tax Compliance Act (FATCA) was signed between Finland and the United States in the summer of 2014, and the related legislative changes were approved by Parliament on 20 February 2015.
The new regulations apply particularly to banks, custodians, insurance companies and investment firms. Through FATCA, US tax authorities are seeking more information on the savings and investments of US citizens living abroad. In Finland, FATCA and the legislation enacted due to it apply particularly to the finance sector companies, who will be obligated to identify their customers more carefully and report information on assets and income concerning some of their customers to the US.
First of all, financial institutions must identify the tax domicile of their customer. Financial institutions, such as banking and investment service providers, will have to request more information regarding their customers’ tax domicile. If a customer is generally liable to tax in the US, the financial institution must disclose the customer’s income and asset data to the Finnish Tax Administration, which will pass the information on to the US tax authorities.
The Finnish Tax Administration has decided that FATCA data must be provided via an annual electronic notification. The data for 2014 must be disclosed on 30 April 2015 at the latest. After this, notifications will fall into a normal annual rhythm, with the data for 2015 having to be disclosed by the end of January 2016, and so on. The Finnish Tax Adminstration will issue more detailed instructions on annual notifications soon.
If a financial institution fails to fulfil its FATCA obligations, a 30% withholding tax will be imposed on all payments it receives from the US as a penalty. Failing to fulfil the obligations may also lead to negative consequences in Finland, such as tax rate increases or removal from the prepayment register.
Tax information exchange programmes are set to expand even further in the near future. Information exchange within the EU looks set to be implemented during this year with reporting to begin in 2016, and the OECD’s global project will be following suit in 2016 with reporting to begin in 2017.