Ireland proposing a Model Agreement for implementation of FATCA

The Irish Funds Industry Association has announced that the country’s tax authorities are in discussions with their US counterparts over the possibility of entering into a "model agreement" for implementing America’s Foreign Account Tax Compliance Act (“FATCA”).

In February, the US announced that they had agreed on an intergovernmental agreement with 5 countries, whereby financial institutions in these countries would forward the data on American account-holders to the governments of the respective countries in which their accounts are held, rather than having to make the disclosures directly to the IRS. The five countries concerned are the UK, France, Germany, Ireland and Italy. 

The concern for jurisdictions which have a significant amount of multi-jurisdictional work (most of the world's key international finance centres, whether onshore or offshore) was that it would be complex to have different reporting formats and bases for each country in which the accounts are held, and therefore the prospect of a model agreement for Ireland whereby the data would be passed across on a consistent basis and in the same format will be welcome news, particularly for the country’s fund management industry, which is of great importance to the economy of the jurisdiction. According to the IFIA, Ireland experienced the highest net inflows of UCITS of all fund domiciles in 2011, attracting some €62bn, nearly €50bn more than the next most successful territory.

The model agreement would not in any way alter or deviate from the obligation to make the FATCA reporting, but would in practice make it logistically somewhat easier to comply.

It is hoped that the model agreement will be in place by the end of June 2012.

FATCA compliance is an issue which is currently exercising the brains of many in the international finance community.  There is concern starting to emerge that trust companies in particular are ill-prepared for the potential impact of the new regulations, and that the regulations are not yet well understood in detail.  I know from my own experience with trust companies that many do not have IT systems in place which would permit easy identification or reporting of individuals who may be caught by the reporting requirement. Most would be able to identify if their clients were born in the USA or currently had a principal residence there, but not many of the standard systems would be able to pick up green card holders, or those with secondary residences in the US.  The task of identifying and then tracking this information throughout the lifetime of a client relationship is likely to be onerous, and detractors complain that FATCA is likely to lead to some institutions concluding  that it is simply easier not to deal with US individuals.  That might be a possibility in the realms of private wealth, but is not really a feasible option for fund managers and administrators.

Since the announcement of the intergovernmental agreement with the first 5 territories in February, some other jurisdictions, such as Guernsey, have expressed a desire to come to similar arrangements, but as yet there has been no official word on how well talks are progressing.