More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
The Treasury Department released Thursday a model agreement developed with France, Germany, Italy, Spain and the U.K. to implement the information reporting and withholding tax provisions of the Foreign Account Tax Compliance Act (FATCA). The provisions target noncompliance by U.S. taxpayers using foreign accounts.
The model agreement has two different versions: a reciprocal version and a nonreciprocal version. Both provide a means for foreign banks to report financial account information to their own tax authorities, with such information to be automatically exchanged under existing bilateral tax treaties or tax information exchange agreements.
Both versions of the model resolve legal issues that were raised in connection with FATCA; they also simplify its implementation for financial institutions.
The reciprocal version, which is available only to partner countries—jurisdictions with which the U.S. has an income tax treaty or tax information exchange agreement in effect—not only provides a means for foreign banks to report on the assets held in their institutions by U.S. citizens, it also allows the IRS to share taxpayer information with a foreign government about its citizens' assets held in the U.S. Congress must approve the use of the reciprocal agreement.
For the reciprocal version to be used, the Treasury Department and the IRS must already have determined that the recipient government has provisions in place to maintain confidentiality of information and that the data provided is used only for tax purposes. It also includes a policy commitment to pursue regulations and support legislation to provide equivalent levels of exchange by the U.S.
The nonreciprocal version governs a one-way transmission of information from the foreign country to the U.S., without receiving any data in exchange.
Banks in countries that do not make arrangements with the Treasury Department will instead have to report client tax information directly to the IRS. Banks that fail to share client information with the IRS could be assessed a withholding tax of up to 30% beginning in 2014.