On March 18, 2010 the US FATCA (Foreign Account Tax Compliance Act) came into force.  FATCA is aimed at countering tax evasion by American citizens and tax residents in the United States, performed using offshore accounts and intermediaries.

FATCA is aimed at strengthening the rules on the identification of beneficial owners of accounts and the disclosure requirements that must be performed by foreign financial institutions.

The provisions contained in FATCA require each foreign financial intermediary to sign a special agreement with the United States Internal Revenue Services (IRS), in which the intermediary is committed to:

  • identify their customers (individuals and legal entities) according to the normal classification laws of the USA and according to the stringent due diligence procedures for tax purposes;
  • provide information to the IRS on the US holder of the bank account[1] and on the bank account itself (eg personal data, US tax code of the account holder, the details of the account, the account balance, withdrawals and payments into the account);
  • apply a withholding tax of 30 % on payments which are sourced in the US, made to customers that do not provide the information on their tax residence, as well as on payments made to foreign banks that are located in a country which has not signed to an intergovernmental agreement and which do not subscribe individually and independently to a foreign financial institutions Agreement (non-participating financial institutions).

In order to improve the international tax compliance, and better implement the FATCA regulations, on January 10, 2014, the United States signed an Intergovernmental Agreement with Italy (the Agreement”).

The Italian law which will ratify the Agreement is in process in the Italian Parliament and has almost reached the end of its legislative procedure.

The bill of law (that is still subject to modifications), establishes obligations for Italian financial institutions, not only for the implementation of an automatic exchange of information under the Agreement, but also of other further duties (eg the application of the withholding tax).

The main duty imposed on financial institutions that will come into force retroactively starting from July 1, 2014 is that when an American resident or citizen (wherever resident) (or a legal entity controlled by American residents or citizens) opens a bank account, they must require some additional information (including, amongst other things,the tax code of the Country of residence and documentation proving American citizenship).

In 2015 and 2016, the main other duties that will come into force are:

  1. the Italian financial institution must communicate to the Italian Tax Agency the information relative to the payments that will occur after the date of January 1, 2015;
  2. when an individual (or legal entity), who is resident in a country other than Italy or US, opens a bank account, the Italian financial institution must require additional information (eg the tax code of the Country of residence etc);
  3. the Italian financial institution must apply the withholding tax of 30% on payments sourced in the US that are paid to a non-participating foreign financial institution.

The bill of law provides for the application of heavy fines in case of non-compliance with the provisions.

In conclusion, it is important to highlight that the Agreement also provides for reciprocal duties between Italy and USA; this means that the information relative to Italian individuals who have bank accounts in United States will be reported to the Italian Tax Agency.