The IRS yesterday issued
the long-awaited set of “final” regulations for FATCA (although technically
they could still be changed at any time until published in the Federal
Register, expected to be on 28th January).
FATCA was enacted
by Congress in 2010 as part of the HIRE Act, and provoked an immediate backlash
among many foreign banks, which have baulked at the complexity and cost of providing
the information required to the IRS. Some attempt has been made by the IRS to
address the concerns in the final regulations (such as by simplifying
arrangements for groups of FFIs and clarifying the registration requirements
for investment entities), but the provisions remain extremely onerous.
Key to the IRS’s
attempts to streamline processes has been its efforts to conclude intergovernmental
agreements (“IGAs”) with foreign governments, based on two different models. The first model enables FFIs in jurisdictions
that have signed Model 1 IGAs to report the information about U.S. accounts to
their respective governments, who then exchange this information with the IRS,
rather than having to enter directly into agreements with the IRS themselves. The
second model IGA requires FFIs to register with the IRS and report the information
about U.S. accounts required by FATCA directly to the IRS, and is designed solely
to get round the fact that giving the information would be illegal absent a
legal requirement for it to be done.
The IGAs themselves,
however, are proving to be very controversial.
It is clear that they do not lessen the information gathering and
reporting burden on the FFIs at all and, on one construction, they make the compliance
burden considerably worse for US financial institutions, not better, as many of
the agreements contain bi-lateral obligations requiring the US FFIs to share
information on accounts held for citizens of the counter-party country. In effect, it is introducing FATCA as a
global template, despite the fact that it is widely opposed and not yet tested
in practice.
Others are far more
sceptical that the bi-lateral element of the IGAs is anything more than window-dressing,
and do not believe that the US will ever deliver what they are demanding of
others, citing in support the fact that Article 6 states that:
1. Reciprocity. The Government of the United States acknowledges the need
to achieve equivalent levels of reciprocal automatic information exchange with
the United Kingdom. The Government of the United States is committed to further
improve transparency and enhance the exchange relationship with the United
Kingdom ""by pursuing the adoption of regulations and advocating and
supporting relevant legislation"" to achieve such equivalent levels
of reciprocal automatic exchange.”
So, in essence, the
reciprocal element will happen if and when Congress decides to enact it (and
bear in mind there will be a lot of lobbying against it from the US financial
institutions who would bear the brunt of the burden).
So far, according
to the US, 7 countries have signed or initialled IGAs (the UK, Mexico, Denmark,
Norway, Ireland, Switzerland and Spain) and they claim to be in negotiation
with around 50 more countries. It is notable,
however, that many important territories such as Germany, France, Italy and
Spain do not yet appear to have signed up, despite stating their willingness to
a year or so ago. No word has been given
for the length of time being taken to get them to the stage of signing
agreements – perhaps a reflection of the complexity of the issues that are now
being considered?
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