The trend of fiscal data exchange between countries, which has been initiated a few years ago, continues to move forward at high speed with the signing of a new data exchange agreement between Belgium and the US. Individuals with foreign source income, assets, properties, accounts or investments are more and more faced with international tax issues, with ever increasing complexity and compliance efforts.
In order to repel tax evasion by US tax payers with assets abroad, the US in 2010 has issued a complex and far reaching legislation relating to bank accounts, which are held outside the US. This legislation is called FATCA, which stands for ‘Foreign Account Tax Compliance Act’. The initial FATCA law was further expanded by a law of 28 September 2013, which entered into force on 1 July 2014.
A new system of world wide automated data exchange comes into existence for US persons, who hold accounts abroad with a variety of financial institutions.
Non US financial institutions, which do not participate in the FATCA system or which do not comply with FATCA rules will be subject to a 30% withholding of US tax on any payments from US sources, which are made on their behalf or on behalf of their clients.
FATCA is implemented by means of specific agreements between the US and those countries, which are participating or directly with the financial institutions where such country agreements would not apply.
België now has signed such a country agreement with the US on 23 April 2014 (Agreement between the Government of the Kingdom of Belgium and the Government of the United States of America to Improve International Tax Compliance and to Implement FATCA).
Following this agreement, all Belgian financial institutions will have to provide certain account related information about US individuals to the Belgian tax authorities, who will transmit such information to the IRS.
De minimis rule
A financial institution can opt not to identify certain small accounts. These are mainly accounts with a balance, not exceeding a certain limit. For private persons, this exception can apply on existing accounts with a balance, which did not exceed 50.000 USD on 30 June 2014 and also on insurance contracts and annuities with a value not exceeding 250.000 USD on formentioned date. Also for new accounts a de minimis amount is defined at 50.000 USD.
It appears, however, that most Belgian financial institutions would not actually apply the de minimis exception and would therefore also report smaller accounts.
Identification of the tax payer
In order for the system to be able to work, identification of the tax payer is required. For existing bank accounts of private persons, the financial institutions will look for US indicia, such as the nationality of the client, his or her telephone number in the US, the place of birth, mail or home address in the US, etc…
If US indicia are identified, the account should be reported by the financial institution, but the client will be given the opportunity to prove that he is not a US person as defined by the law in order to avoid such information exchange to actually occur.
Additional actions must be taken by the financial institution for accounts with a balance in excess of 1 Million USD on 30 June 2014, which are deemed to be High Value Accounts. In such case the financial institution not only has to scan the available electronic data, but also review the paper information, which is available in order to determine the actual status of the account.
For new accounts, an initial review will take place in order to assess up front whether or not the account is to be reported.
Also for accounts, held on the name of legal entities (not by private persons) there are specific procedures in order to determine whether they are to be reported as well.
The new system does not immediately enter into force. In Belgium, first a local Belgian law is to be voted in order to initiate the execution of the agreement between Belgium and the US.
The Belgian tax authorities are expected to issue further administrative instructions to inform the financial institutions of their specific obligations and of the scope of the new rules.