WASHINGTON (1/27/14)--The Foreign Account Tax Compliance Act (FATCA) could become a high-priority issue in this year's elections after Republican National Committee members added FATCA opposition to the party's policy platform last Friday.
A draft version of an anti-FATCA resolution stated that the act has "inadvertently ensnared every United States citizen living overseas due to its overzealous invasion of privacy and punitive taxation and enforcement."
FATCA is designed to create a tax information reporting and withholding system for certain payments that are made to foreign financial institutions (FFIs) and other entities. Some provisions would apply to U.S. credit unions that make international payments. U.S. credit unions would also be required to identify and withhold on so-called "pass-thru payments" to FFIs involving transfers of U.S.-sourced investment or interest income an FFI that has not yet been subject to taxation.
U.S. Internal Revenue Service regulations to implement FATCA also make it harder for U.S. taxpayers to avoid U.S. income taxation by placing funds in overseas accounts.
"IRS finalized regulations in early 2013, but the regulations don't start to apply to U.S. credit unions in most respects until Dec. 31, 2015 and the real operational impact doesn't start until Jan. 1, 2017, when some credit unions might act as FATCA 'withholding agents.' If they provide international electronic payments services, they would be required to withhold 30% on certain transactions members make with foreign financial institutions without certain agreements with the U.S. and to use customer due diligence analyses," said Kathy Thompson, senior vice president for compliance at the Credit Union National Association.
Opposition to FATCA continues to grow in the U.S., and Rep. Bill Posey (R-Fla.) last year introduced H.R. 2299, which would repeal the Internal Revenue Service's recent expansion of United States credit union and bank reporting rules with respect to interest on deposits paid to nonresident aliens.
CUNA and the World Council of Credit Unions have supported the bill, saying in a joint letter that it "would be instrumental in eliminating an unnecessary and unduly burdensome rule for credit union.