In 2013, intensive activities marked implementation of the requirements of a U.S. tax law, the Foreign Account Tax Compliance Act (FATCA). The main purpose of the law is to prevent U.S. residents from evading payment of taxes, although its provisions affect the activities of financial institutions worldwide, including in Belarus. Indeed, foreign financial institutions will be assigned the function of tax agents of the U.S. Internal Revenue Service (IRS) with the related administrative and legal burden.
If foreign financial institutions refuse to meet the FATCA requirements, the U.S. will sequentially impose sanctions through its financial agents in the form of deduction of 30% of incoming payments, originating from the U.S., as well as termination of correspondent relations with banks which do not participate in FATCA.
In order to ensure compliance with FATCA, Belarusian financial institutions will have to:
- identify direct and indirect owners of accounts to determine whether they are investors from the U.S.;
- disclose annually to the IRS (directly or, once an intergovernmental agreement is in place, through the Belarusian tax authorities) information about open accounts of U.S. taxpayers;
- withhold 30% of any payment from certain sources in the U.S. from non-participating foreign financial institutions and persons evading disclosure of information in favour of the IRS.
Under FATCA financial institutions must disclose information if the level of an aggregate account balance equals:
- for individuals – USD 50,000 or more;
- for legal entities – USD 250,000 or more.
Belarusian legal entities are subject to FATCA if at least 10% of their authorised capital belongs directly or indirectly to one or several participants from the U.S. (a U.S. citizen, a U.S. permanent resident or a U.S. legal entity).
There are two potential models of cooperation within the FATCA framework. As a general rule, all foreign financial institutions are required to conclude a cooperation agreement with the IRS, to register in the recording system and to become so-called participating financial institutions.
However, it is also possible to enter into an intergovernmental agreement, according to which the information exchange will be carried out between the tax authorities of the two countries. In this case, financial institutions will be required to provide information about their customers not to the IRS, but to the tax authorities of their country, which then forward it to the U.S.
In November 2013, the National Bank announced the readiness of the U.S. side to conclude an intergovernmental agreement on the application of FATCA. At the moment the draft agreement is under negotiation.
Meeting FATCA requirements will be possible, inter alia, due to certain amendments to the tax laws, which are outlined below.