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BELGIUM AND USA SIGN FATCA
 
On 23 April 2014, Chargé d'Affaires a.i. mark torella of the U.S. Embassy and the Belgian Minister of Finance Koen Geens signed a tax information exchange agreement that will not only implement FATCA but also improve international tax compliance.  We announced it two years ago, here it is, as of next year, the IRS will know what accounts you currently have in Belgium and the Belgian tax authorities will be told all about your U.S. accounts.

FATCA

The Foreign Account Tax Compliance Act, or FATCA for short, was enacted in 2010 to counter tax evasion by US taxpayers. The Act continues on the road taken with the Qualified Intermediary (QI) regime; FATCA obliges foreign banks, insurance companies, as well as funds and capital markets issuers, to report details of their US clients to the IRS. These Foreign Financial Institutions (FFIs) must identify U.S. account holders or entities in which U.S. taxpayers hold a substantial ownership interest and report these U.S. accountholders. Failure to sign up to FATCA exposes the FFIs to a 30% withholding tax on any payments they receive from the U.S. (dividends, interest, royalties or the proceeds of the sale of securities). 

However, many FFIs could not sign up to FATCA because of privacy rules and bank secrecy laws. That is in particular the case for Belgium with what is left over of its banking secrecy. To get around these restrictions, the Treasury Department came up with the idea of negotiating and signing intergovernmental agreements with their counterparts in other jurisdictions. Privacy and bank secrecy rules do not prevent banks and insurance companies from reporting to their own tax authorities. Double tax treaties and tax information exchange agreements already have rules for the exchange of information; FATCA is just tagged on to these rules. Belgian tax authorities can then pass the information to the IRS.

Exchange of information is reciprocal by nature; that means that the U.S. will also give the Belgian tax authorities information about the accounts held by Belgian residents with U.S. financial institutions.  However, because the IRS did not have the legislative tools to achieve equivalent levels of information exchange, legislation had to be proposed to do so.

The next parliament will now need to implement the provisions of the Belgian FATCA Agreement into Belgian law so that FATCA can enter into force on 1 July 2014. That is unlikely. However, the Treasury and the IRS have announced that jurisdictions which have reached an agreement in substance on the terms of a FATCA agreement could be treated as having an agreement in effect for 2014. As long as the agreement is implemented before the end of the year, Belgian FFIs will be deemed to be FATCA compliant.

FATCA Agreement

The text of the Belgian FATCA Agreement can be found on the website of the Ministry of Finance.

It requires Belgian financial institutions to carry out a due diligence and identify accounts held by “U.S. persons”. That notion covers not only U.S. citizens and resident individuals, but also U.S. corporations or corporations, as well as U.S. trusts and trusts controlled by U.S. persons. They must search U.S. citizens and resident individuals, by searching for indicia such as a U.S. place of birth, a U.S. mailing address, a U.S. telephone number, instructions to transfer to U.S. accounts, and powers of attorney held by a U.S. resident individual. If they find such indicia, they must ask the accountholder if he can justify that he is not a U.S. person or that his account does not need to be reported.

For reportable accounts, the FFI must transmit every year starting in 2015 (for 2014), the identity of the account holder, his U.S. tax identification number, the name of the bank, the account number, the account balance. As of 2016, the FFI will have to report the financial income (interest, dividends and other income) paid in 2015, and as of 2017, they will also have to inform on the gross proceeds of the sale of securities.

The FATCA Agreement has a number of exemptions for Belgian retirement funds that qualify for treaty benefits under the double tax treaty, for other “broad” and “narrow” participation retirement funds, small or local banks and financial institutions, etc. Each category has quite strict criteria to avoid they are used to get around the bank's FATCA obligations.

Certain Belgian accounts are excluded as well. That is the case for Belgian occupational pensions, retirement saving accounts and policies, long term savings products, stock remuneration plans and stock option plans

And Belgian residents?

Starting in 2015, U.S. financial institutions will have to report on Belgian resident individuals, even if they are U.S. citizens or residents.  They will report the same data on depository accounts held by Belgian resident individuals (if the account pays $10 of interest in a year) as well as all other accounts held by Belgian resident individuals or entities.  The first income to be reported will be 2014 income, including interest, U.S. source dividends and other U.S. source income paid by the financial institution.

Beyond FATCA

The U.S. Treasury has signed or is in negotiations with the tax authorities of over 80 countries to sign intergovernmental agreements. And FATCA has inspired many other states. The U.K. government is signing similar agreements with the Crown Dependencies and the British Overseas Territories. FATCA à l'anglaise seems to be the logical continuation of the EU Savings Directive and it may well forebode a worldwide FATCA.

Moreover, on 6 May, 44 states, including the 34 OECD member states, endorsed the Declaration on Automatic Exchange of Information in Tax Matters, which commits countries to a new global standard for automatic information exchange that provides for automatic exchange of the same data as under the FATCA Agreement. Notable signatories were Singapore and Switzerland.  This new standard should be finalized this 2014 and enter into force in 2017.

27 May 2014
Marc Quaghebeur
De Broeck Van Laere & Partners




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