Finland and the United States have signed an agreement to exchange tax information of citizens and companies who are US taxpayers. The agreement obligates all Finnish financial institutions – such as banks, fund management companies, investment firms and life insurance companies – to identify which of their customers have liability to pay taxes in the US and to report the accounts and investments of these customers to the US tax administration IRS (Internal Revenue Service). The reporting is made through the Finnish Tax Administration.
The agreement implements FATCA (Foreign Account Tax Compliance Act), with which the United States seeks to prevent tax evasion by US tax residents using foreign financial institutions. The reported information includes e.g. interest income, dividends and income from derivatives, life insurance benefits, and the gross selling prices of shares and bonds. The reporting obligation does not apply to Finnish authorised pension providers.
Mona Redsven, legal adviser in tax legislation at the Federation of Finnish Financial Services, says that in the future the retail customer will be asked more questions when they want to open a new account, make an investment or receive a life insurance benefit.
“The questions may seem irrelevant to the customer, but are the means by which the financial institution identifies their US taxpayer customers and collects the information required by the IRS. The agreement obligates financial institutions to actively look for US taxpayers among their new and existing customers”, Redsven adds.
In the USA, tax liability applies e.g. to US citizens (also persons with double or triple citizenship), persons residing in USA under a Green Card, companies registered in the USA and companies whose major ownership consists of US taxpayers.
In the EU, the FATCA will later increase the exchange of tax information also among member states. EU regulations require an individual member state to provide all other member states with the same information that it discloses to a non-EU country, in this case USA. The exchange of tax information between EU and OECD states is also being prepared.
Financial institutions will begin the collection of FATCA information during 2014. First reporting to the USA will be made in 2015.
It is important that financial customers answer the questions and information requests in as much detail as possible, even if they consider the questions irrelevant in their own case. Financial institutions are required to report customer information to the tax administration even if the customer has not answered the questions.
The obligations brought by the FATCA agreement will be entered in Finnish legislation, and the tax administration is currently preparing detailed guidelines on how the agreement is to be applied in Finland.