Regulation Impact Statement Updates
Official website for publishing regulatory impact analysis information for regulatory decisions announced by the Australian Government, COAG and COAG Councils.
Implementation of the United States Foreign Account Tax Compliance Act in Australia – Regulation Impact Statement – Department of the Treasury
On 28 April 2014, the Treasurer announced the signing of an intergovernmental agreement (IGA) between Australia and the United States regarding the United States’ Foreign Account Tax Compliance Act (FATCA).
FATCA aims to prevent US tax evasion by detecting untaxed income and assets held by US taxpayers in financial institutions outside the US. FATCA will commence on 1 July 2014 and will require foreign financial institutions – including financial institutions in Australia – to report details of accounts held by their US customers to the US Internal Revenue Service (IRS). Those institutions that do not comply will face a 30 per cent withholding tax on their US-sourced income.
Australia’s current regulatory environment – including its anti-discrimination and privacy laws – create certain difficulties and uncertainties for Australian financial institutions in complying with the requirements of FATCA. The IGA is aimed at supporting industry by establishing a legal framework that will enable financial institutions to comply with FATCA.
Had Australian not concluded an IGA, Australian financial institutions would have incurred one or more costs. These costs may have included the US withholding tax itself; increased costs associated with participation in global capital markets; or costs associated with reducing their exposure to US sourced funding or investments. There may also have been reputational or other practical limitations in dealing with foreign financial institutions due to the withholding obligations under FATCA.
Compared with the status quo (under which the Government would take no action) each of the model IGA options considered sought to reduce the compliance costs and other impacts of FATCA on Australian financial institutions, primarily through:
- streamlining information reporting requirements;
- resolving apparent conflicts between FATCA compliance and Australian laws; and
- reducing the scope of the reporting requirements by excluding certain categories of accounts.
All of the three options (including the status quo) were likely to impose significant compliance costs on the Australian financial sector. The precise nature and magnitude of those costs under each scenario would have depended on how individual financial institutions chose to respond to FATCA. The adoption of the preferred option – the model 1 IGA – is expected to result in average annual compliance cost savings of around $58 million. These compliance cost savings have been assessed relative to the estimated compliance costs that could have been incurred in the absence of Government action.
The agreement has been assessed as likely to have a major impact on the Australian financial sector with flow-on effects to the broader economy. A Regulation Impact Statement (RIS) was prepared and certified by Treasury and has been assessed as adequate by the Office of Best Practice Regulation. Given the significance of the proposal a post-implementation review will be required within five years.
- OBPR Assessment Advice – details-stage RIS – DOC version [ 185KB]
- OBPR Assessment Advice – details-stage RIS – PDF version [ 674KB]