FATCA (Exchange of Information with the USA)

The initial purpose was to prevent US taxpayers from transferring their capital to foreign tax havens. Since 2012, FATCA also stipulates that the USA will report information and participating countries therefore receive information from the USA for the purpose of verifying the capital income of their taxpayers.

The participating countries undertake to collect the tax-relevant information from the financial institutions and exchange it with the other countries. Tax honesty is to be improved by a broadening of the reporting duties.

• Financial institutions must enter into an additional agreement with the IRS (US tax authority).
• All clients outside the USA must be identified in respect of their US-tax status. Bank must in particular identify persons, who are shareholders of companies and partnerships (if these are predominantly investing, so-called passive companies).
• The mere suspicion, that a German citizen might be a US-taxpayer under US law subjects the financial institutions to the obligation of verifying these indicators for US-tax residency.
• Deposit accounts and non-listed equity investments must also be reported annually to the Internal Revenue Service.
• The scope of the term reportable income is very broad.
• Deposits, withdrawals and maximum balances must also be reported.
• A withholding tax of 30% is applied to all income from US sources (”withholdable payments”) if the US authorities deem a financial institution to be uncooperative. This can expose them to significant economic pressure. The withholding tax does not settle the tax debt and does not replace submission of the annual FATCA report. The withholding tax can be avoided, if the financial institution reports information on accounts held be US citizens to the USA. The withholding tax has been in effect since 2014.
• The reciprocal reporting duties of the other partner country (e.g. Germany) are set out in the respective FATCA treaty.
• The exchange of information does not apply to low-volume savings accounts with an investment amount of up to US$ 50,000. Individuals, whose portfolios exceeds one million US dollars are however the subject of further reporting duties.

In 2012, the USA and Germany, France, Great Britain, Italy and Spain announced the implementation of FATCA in these so-called “FATCA partner countries” on the basis of bilateral treaties. The countries presented a model agreement for this purpose. This model agreement provides for a mutual exchange of information. The USA and Germany entered into an arrangement, which provides for the following in respect of theexchange USA/Germany:

• The USA waives the collection of withholding tax.
• Relevant data must be reported to the German authorities, which will then in turn forward the information to the US authority.
• Germany must enact application regulations for FATCA.
• The USA undertakes to report information on interest and dividend income, which is collected by the financial institutions in the USA, to the respective partner country (Germany).