The Implementation of FATCA into German Law: Current Draft Decree-Law and Remaining Uncertainties

Abstract:

In the U.S., FATCA comes into effect on July 1, 2014. The aim of FATCA is to counter tax evasion or avoidance in the U.S. through foreign financial institutions. FATCA stipulates a compulsory withholding tax that could only be avoided by fulfillment of specific, broad obligations of cooperation of the foreign financial institutions. For the purpose of the implementation of these obligations into national law, the German Ministry of Finance took preparatory actions over the past two years which lead to a respective draft decree-law, announced on March 6, 2014. The final decree is intended to provide a basis for the implementation of the obligations provided by the German/U.S. Intergovernmental Agreement concluded on May 31, 2013. Even though financial institutions were supposed to register with the IRS until April 25, 2014 significant questions remain as to the scope of the IGA and the German decree that must be clarified first in order to secure legal certainty and not to risk another delay in the implementation process. This article provides an overview of the national FATCA implementation process and points out particular uncertainties that financial institutions still face which need to be addressed promptly by the German authorities before FATCA could become an efficient tool to combat tax evasion or avoidance.