October 9th, 2012 | Published in German Tax News
Taxpayers with US nationality are facing several tax planning and compliance challenges these days. They are taxable in the USA with their worldwide income, regardless of their place of residence. And the Internal Revenue Service (IRS) lately focuses more and more on collection of taxes overseas and makes an effort to prevent tax evasion via foreign financial institutes. The Foreign Account Tax Compliance Act (FATCA) therefore shall serve these goals by several reporting requirements and thereby strives serious privacy concerns as well as data protection issues. For non-cooperation of bank clients and financial institutes, the FATCA provides for a 30% withholding tax on all income from US-sources („withholdable payments“).
In July 2012, the Federal ministry of Finance of Germany has published a model convention for the implementation of FATCA into federal national law. The next step would be the negotiation of a bilateral convention between Germany and the USA which is supposed to attenuate the effect of the FATCA on German financial instates:
- No contracts of German financial institutes with US government shall be necessary. Instead, Germany shall provide information about bank accounts that US-clients maintain here. This is supposed to make sure that German banks do not directly and by “free will” report to US authorities – which would cause nonconformity with national law
- German financial institutes generally shall not be subject to the 30% withholding tax.
The EU commission is also looking for a European solution on behalf of the FATCA.
Consequences are foreseeable not only for financial institutes but also for other companies (of all sizes) in regards of business financing, especially for consortium agreements of US-subsidiaries. Banks which do not agree to comply with the provisions set forth in the convention implementing the FATCA will – under the usual contractual bank provisions – deduct those 30% payable to the US regime from their beneficiaries. Thus, companies would be soaked twice – paying 30% to the US-tax authorities and another 30% to their bank. Increase of credit costs would be the bitter consequence.