Australia and the United States have signed an agreement to reduce the burden on Australian financial institutions in adhering to the US’s Foreign Account Tax Compliance Act (FACTA).
Treasurer Joe Hockey said yesterday the conclusion of the treaty-status inter-governmental agreement (IGA) would help lessen the burden on Australian business, curtail costs through simplifying due diligence requirements and expand arrangements between the Australian Tax Office and US Internal Revenue Service.
The IGA will also boost tax information-sharing agreements between the two countries to curtail tax evasion, Hockey said.
FACTA is an information-reporting system that was put in place in the US in March 2010. It will come into effect on 1 July this year and is predicted to affect a large part of the Australian financial services sector.
It was implemented as part of the Hiring Incentives to Restore Employment (HIRE) Act. Under FACTA, foreign financial institutions have to report information to the Internal Revenue Service about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a significant ownership interest.
Meanwhile, the Financial Services Council (FSC) has welcomed the IGA, saying it will reduce red tape and save hundreds of millions of dollars in compliance costs.
“The FACT IGA is a positive outcome from many months of consultation between Australian Treasury and the US Government,” Financial Services Council CEO John Brogden said.
“Treasury has worked closely with the US Government to get this IGA signed.”
The Association of Superannuation Funds of Australia (ASFA) warned in 2012 that financial institutions could violate Australia’s Privacy Act in adhering to FACTA.
It said foreign financial institutions (FFIs) in the US faced a dilemma: non-compliance with FACTA could bring huge financial penalties, but the only way to avoid it is through giving information, which could violate Australia’s Privacy Act.
Public consultation will begin immediately on the draft legislation and its explanatory memorandum, Hockey said.