In 2010 the United States (U.S.) adopted the Hiring Incentives to Restore Employment Act – HIRE Act, which encompassed tax compliance provisions in a part commonly known as FATCA – Foreign Account Tax Compliance Act.
The aim of FATCA provisions with their global implications is prevention of fiscal evasion by U.S. taxpayers whose funds are placed in financial accounts and entities outside the U.S.
FATCA provisions have implications for financial institutions in other countries, as they require them to perform due diligence procedures in order to identify U.S. taxpayers and to report the financial accounts to the Internal Revenue Service (IRS). Due to the reporting requirements the financial institutions outside the U.S. (among others also Slovenian Financial Institutions) have an obligation to register on the IRS website for FATCA purposes and obtain a special FATCA identification number – GIIN (Global Intermediary Identification Number). Further information on the registration process is available on the IRS website.
If a certain financial institution does not comply with FATCA provisions, it will be subject to a special FATCA tax in the form of a 30 % U.S. withholding tax on taxable payments to them from U.S. sources.
On 2 June 2014 the Republic of Slovenia concluded an Agreement to Improve International Tax Compliance and to implement FATCA (the Agreement) with the U.S. that entered into force on 1 July 2014, which further defines the obligations of Slovenian Financial Institutions and the Financial Administration of the Republic of Slovenia related to FATCA implementation. The Agreement supplements the existing rules on cooperation between the Republic of Slovenia and the U.S. in the field of avoidance of double taxation and exchange of information and will contribute to the reduction of administrative burden to Slovenian Financial Institutions. In accordance with Annex II of the Agreement certain Slovenian Financial Institutions and financial accounts will be exempt from the system of reporting and from the U.S. withholding tax.
The conclusion of the Agreement, which is based on Model 1 IGA – Intergovernmental Agreement, ensures the implementation of FATCA provisions on the basis of reporting and exchange of information in accordance with the Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital. According to the Agreement, Slovenian Financial Institutions will be required to report information as determined in the Agreement to the Financial Administration of the Republic of Slovenia, which will report the information to the IRS. Reciprocally, Slovenia will receive information from the IRS about the funds of Slovenian taxpayers in the U.S. The first reporting about the U.S. taxpayers that will be defined as specified U.S. persons and their funds will take place in 2015 for the calendar year of 2014 in the prescribed form.
For the purposes of FATCA reporting by the Slovenian Financial Institutions, further regulations that will be based on the Act Amending the Tax Procedure Act and IRS FATCA XML Schema are currently being prepared.