The application of FATCA regulations by some of Serbian Banks, and more specifically the required consent for collection and delivery of personal data and information about their bank account to the IRS as a prerequisite to open a bank account, have provoked strong reactions of Serbian citizens.
The Foreign Account Tax Compliance Act (FATCA) is a set of regulations adopted in the United States in order to combat offshore tax evasion by US citizens and companies.
Although an official agreement with Serbia still has not been signed, after signing a Letter of Intent on the conclusion of the international agreement regarding the implementation of the provisions of FATCA regulations, as of 1 July 2014 Serbia was placed on the list of participating jurisdictions.
On the other hand, The Association of Serbian Banks has conducted an independent registration and the banks have begun implementing FATCA regulations as of July in fear of increased taxation on certain financial transactions (30%) or even termination of business relationships with banks in which are outside the FATCA system.
This implementation and commitment includes the identification of “specified US persons”; complying with any required due diligence/verification procedures; annual reporting of information on U.S. accounts (year-end account balance or gross receipts and gross withdrawals or payments from the account); deducting and withholding a 30% tax on payments paid to account holders who do not supply the required information (recalcitrant account holders), or paid to a non-participating FFI.
The category named “Specified US persons” includes everyone with: US citizenship or permanent residence; US address (resident or correspondence); US place of birth; US telephone number; power of Attorney for signatory authority, granted to person with US address; or a standing order for funds’ transfer to an account maintained in the US or received from a US address (e.g. US pension). For legal entities, a Substantial US Owner is deemed to exist in cases where a US resident holds more than 10% of shares (be it in value or vote) in a foreign corporation, partnership or trust.
In Serbia, according to the Law on Personal Data Protection, the provision of personal data details to foreign sources represents a serious and punishable offense. A check performed by the Commissioner for Information of Public Importance and Personal Data Protection determined that out of 29 banks operating in Serbia only 14 are gathering information, but none of them are sending data out of Serbia.
Some banks have followed the example of Western European banks, choosing a status as “a participating foreign financial institutions without United States customers” which resulted in termination of relationship with the existing and refusal to work with US clients in future, rather than entering into an expensive and complicated procedure, and facing possible penalties for mistakes in procedures or direct refusal to cooperate.
Implementation of FATCA has caused strong reactions all over the world. The number of Americans who have renounced their US citizenship as the only way to avoid double taxation and violation of their privacy has tripled in 2013. Some financial institutions have announced that in case of problems with practical feasibility of implementation (bureaucracy, cost increase, additional employment and so on) they could withdraw their investments from the US. The real consequences and potential benefits of the FATCA set of regulations remain to be seen.
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