Countries all over the world are stepping up the measures against international tax evasion and fraud. Up to now, the US have taken the most extensive actions through the implementation of FATCA (‘Foreign Account Tax Compliance Act’ ) legislation in 2010.
Also at the European level, recent initiatives were taken by the European Commission. The collaboration between EU Member States was already intensified in 2011 (EU Directive 2011/16/EU of 15 February 2011). A proposal was filed in June 2013 in order to further extend the automatic information exchange between EU Member States.
From January 1, 2015 onwards, the Member States will have to systematically exchange information (available to them) relating to:
The European Commission further proposes to extend the list to also cover:
The new data exchange obligations should be implemented by January 1, 2015. They will, however, already cover data relating to the year 2014.
Once the data exchange will start, numerous international tax issues are likely to come up for expatriates, working overseas and also for Belgian tax residents, with assets abroad or income from foreign sources.
International tax treaties will become more important, though it is not always easy to determine which country is entitled to levy tax on the income (the country of source and/or the country of residence of the beneficiary). Situations of international double taxation and complex discussions with tax authorities on international tax matters are likely to become more frequent.
Also the qualification of the income, the determination of the amount of taxable income as well as the timing of the taxable event (to determine which sections of the tax treaties and of internal tax law are applicable) will often become a challenge. Specific areas of attention are likely to be share based remuneration (stock options, restricted stock units etc…) and pension or similar distributions.
FATCA also has far reaching implications for non US based financial institutions.
Under FATCA rules, income from US sources, which is paid out by a non US financial institution, will be subject to a US withholding tax at source of 30 % as from July 1, 2014. The withholding tax, which may be difficult to recover by the tax payer, can be avoided, provided that the financial institution meets certain rule in respect of client identification and exchange of information.
To this purpose, the financial institution should enter into an agreement with the US revenue service. A number of countries took initiatives to sign an agreement with the US in order to centralize the data exchange through their national revenue services. In this way, they can relieve their local financial institutions from the 30% withholding tax obligation. Belgium is also working on a similar agreement.