The federal government has entered into an intergovernmental agreement with the United States to "reduce the burden on Australian financial institutions" in complying with the US Foreign Account Tax Compliance Act.
Treasurer Joe Hockey announced yesterday that the agreement with the US government has been completed, heralding ramifications for “a large part of the Australian financial services sector”.
“The conclusion of this treaty-status IGA will help Australian financial institutions comply with FATCA,” said a statement from the treasurer.
“It reduces the overall burden on Australian business, minimises costs by simplifying due diligence requirements and broadens arrangements between the Australian Taxation Office and the US Internal Revenue Service.”
Mr Hockey said the government will be introducing legislation into parliament “as soon as practicable” to give effect to the agreement.
The US tax legislation – which was enacted in March 2010 – was previously described by the Financial Services Council of containing “onerous procedures” with which Australian financial services businesses were required to comply, including an obligation on financial institutions to report detailed information about financial accounts held by US citizens.
The FSC issued its own statement yesterday welcoming the announcement of the IGA – an initiative the financial institutions’ lobbyist has been vocal in supporting.
“The FATCA IGA is a positive outcome from many months of consultation between Australian treasury and the US government,” said FSC chief executive John Brogden.
“Treasury has worked closely with the US government to get this IGA signed,” Mr Brogden said. “It is significant for the financial services industry in reducing red tape and will save hundreds of millions of dollars in compliance costs.”
King & Wood Mallesons associate Suzanne Gibson previously told InvestorDaily the FATCA regime may have significant implications for Australian financial services providers.
"Everyone working in the financial services industry needs to be aware of FATCA and exactly what their compliance requirements are," Ms Gibson said. "Non-compliance could have a significant impact on returns.”
In order to avoid FATCA compliance requirements, financial institutions including Deutsche Bank, HSBC, ING, Commerzbank and Credit Suisse began closing brokerage accounts for US customers in 2011, according to Germany's Der Spiegel newspaper.