More On Legal & Compliancefrom The Advisor's Professional Library
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
- Pay-to-Play Rule Violating the pay-to-play rule can result in serious consequences, and RIAs should adopt robust policies and procedures to prevent and detect contributions made to influence the selection of the firm by a government entity.
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.