two people working on computers

Treasury Proposes Reducing FATCA Burden

February 01, 2019

Treasury Proposes Reducing FATCA Burden

3 Minute Read

Good news for U.S. citizens living abroad: the U.S. Treasury has proposed reducing the scope of certain withholding tax obligations.

Kevyn Nightingale
Kevyn Nightingale, CPA, CA, CPA (IL), TEP, LL.M.
International Tax Partner

••••••••By Kevyn Nightingale, LLM, CPA, CA, CPA (IL), TEP

There’s good news on the horizon for U.S. citizens living abroad. On December 13, 2018, the U.S. Internal Revenue Service (IRS) proposed reducing the scope of certain withholding tax obligations.

•Since the introduction of the Foreign Account Tax Compliance Act (FATCA) in 2010, the U.S. IRS has been increasing the amount of information it collects on U.S. citizens investing in other countries. This includes citizens residing abroad – in Canada, for example - and subsidiaries of U.S. companies. The concern was that such U.S. citizens were not reporting their foreign income to the IRS.

To compel foreign (non-U.S.) financial institutions to provide this information, the U.S. imposed withholding tax obligations on U.S. payments to foreign financial institutions, where those institutions did not agree to provide the information. Withholding applied to U.S.-based source:

  • interest (including any original issue discount)
  • dividends
  • rent
  • salaries
  • wages
  • premiums
  • annuities
  • compensations
  • remunerations
  • emoluments
  • other fixed or determinable annual or periodical gains, profits, and income, and
  • gross proceeds from the sale or other disposition of any property of a type which can produce U.S.-source interest or dividends

Withholding was scheduled to being January 1, 2019.

However, in early 2017 a Presidential Executive Order instructed U.S. federal agencies to review regulations to reduce unnecessary burdens. Many U.S. and foreign financial institutions complained such withholding would be exceptionally complicated to administer.

 The U.S. Treasury noted that 103 countries have Intergovernmental Agreements (IGAs) or equivalent arrangements, whereby the desired information can be obtained, usually through those countries’ revenue authorities. Substantially all of the U.S.’s large trading partners have IGAs. Consequently, the need for withholding to enforce compliance is greatly reduced.

In other words, the threat of the withholding was sufficient to bring the important countries, such as Canada, to the table. Now that the information is flowing, actual withholding is not very important.

As a result, the U.S. Treasury proposed to reduce the scope of types of payments subject to withholding. Most importantly, the requirement to withhold on gross proceeds (the last bullet above) was withdrawn.

Another problem financial institutions face is there may be multiple layers of financial institutions or entities, such as trusts and partnerships, between the U.S. payor and the beneficial owner of the income. It is often difficult to obtain sufficient information to properly withhold on these “passthru” payments.

The U.S. Treasury has proposed suspending this withholding until two years following publication of final regulations. Those would be, at minimum, at least a year away, in 2020; they may never see the light of day. As unusual as tax legislation and administration has been during this past two years, this is a welcome change.

For more information, contact Kevyn Nightingale, LLM, CPA, CA, CPA (IL), TEP at 416.596.1711 or [email protected].

Text faces or Lenny faces describe emotions just like emojis. Browse these unicode character strings in the gallery.


  • Confidence
    Holding a portfolio on one hand, comparing data on another

    July 28, 2021

    How to optimize value from an Internal Audit co-sourcing partnership

    Co-sourcing your internal audit function can help you navigate several contemporary challenges — including the need for greater agility and subject matter expertise, as well as cost and resourcing pressures. Here we investigate practical steps to find the right vendor and make this relationship as seamless, targeted, and cost effective as possible.

  • Progress
    person reviewing graphs on their phone

    July 26, 2021

    Automating finance, so you can focus on your business

    Cloud accounting and bookkeeping solutions allow you to focus on the critical parts of your business instead of shuffling through paperwork every week.

  • Progress

    July 22, 2021

    Cloud accounting and bookkeeping can transform your real estate and construction operations

    Priorities are changing after the long hours that came with navigating COVID-19. Here’s how you can free up time to focus on what really matters.