On January 10th, the Italian Minister of Economy and Finance, Fabrizio Saccomanni, and the U.S. ambassador to Italy, John R. Phillips, signed the intergovernmental agreement, the “Foreign Account Tax Compliance Act”, to implement provision of U.S. law.
The U.S. law, in acronym ” FATCA“, has the aim to contrast tax evasion of U.S. taxpayers abroad and will come into force starting from July 1st, 2014.
The joint statement between France, Germany, Italy, Spain and the United Kingdom on the one hand, and the United States on the other, dates back to February 8th, 2012. They have indeed pledged to work together to adopt a common approach intended to apply the FATCA through bilateral agreements and working with other countries, together with the European Union and the OECD (“Organisation for Economic Co-operation and Development”), to adapt FATCA rules to a common model for the automatic exchange of information.
The cornerstone of the intergovernmental agreement is the automatic exchange of financial information on the basis of a reciprocity principle. Such cooperation shall include accounts held in the United States by customers resident in Italy and those held in Italy from U.S. citizens and residents. The aim is to exchange information such as the identification data of the account holder, the account number, the financial institution involved, the account balance or value of the items. As of 2015, other information will be added, including the total gross amount of interests or dividends.
This is an awaited and important step as the adherence to the bilateral agreement requires the application of a simplified procedure for financial intermediaries as an alternative to the regulations issued by the United States in January 17th, 2013 (Final Regulations). The FATCA law was indeed enacted by the U.S. to fight tax evasion by taxpayers who use foreign entities to invest funds diverted from the local taxes, and it requires foreign financial intermediaries (banks, life insurances, asset management companies, Sim and brokers) to identify and report their subjected customers to U.S. tax resident customers.
In Italy, intermediaries should be able to ensure the compliance to the FATCA law with an adequate and structured governance. They should be able to identify all customers / prospects classified as U.S. fiscal subjects and they should also intercept the so-called “change of circumstances” of customers that could change the classification as an “extra-USA” customer in a U.S. taxpayer.
They must then apply to financial entities not participating in the FATCA law a 30% fee on transactions having originally U.S. incomes, denominated Fdap (Fixed or determinable annual or periodical).
In particular, as “insurance company”, the term includes any insurance company (or holding of an insurance company) that issues insurance policies with financial content. The P&C lines of business and pensions are excluded from the scope of FATCA .
The intergovernmental agreement also provides several benefits. These include exemption from withholding tax of 30 % on payments of U.S. origin, the removal of the main legal obstacles related to data protection, the simplification and minimization of the burden for the Italian financial intermediaries, which will interface only with the national tax authorities and not with the U.S. tax authorities.
It is clear that this will result in a strengthening of the instrument of the automatic information exchange in the international arena.