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The Treasury has provided welcome guidance for jurisdictions in FATCA limbo |
The US Treasury has responded to calls for clarity about the status of jurisdictions that have agreed in substance an intergovernmental agreement (IGA) with the US to implement the Foreign Account Tax Compliance Act (FATCA), but will not have signed it by the end of 2014.
The Treasury announced on December 1 that those jurisdictions will be considered to have an IGA in effect after December 31 as long as they commit to signing it as soon as possible.
The Treasury announced in April this year that it would consider any jurisdiction to have an IGA in effect if it finalised one in substance by June 30 2014 and signed it by December 31 2014, and if it allowed its name to be included in the list of such jurisdictions on the Treasury website.
"As of July 1 2014, 101 jurisdictions were treated as if they have an IGA in effect; 48 of these agreements have been signed, and 53 remain unsigned," wrote Tara Ferris of the Treasury's Office of Associate Chief Counsel (International) in Announcement 2014-38 on December 1.
In the announcement, Ferris outlined concerns from stakeholders about the deadline of the end of this year to sign IGAs. They covered whether FFIs could plan their compliance properly if the agreements were not signed, the possibility of having to change registration status as a result and whether jurisdictions that had not agreed in substance by the end of June but had made substantial progress since could sign an IGA by the end of the year.
"This announcement addresses these concerns by providing that a jurisdiction that is treated as if it had an IGA in effect, but that has not yet signed an IGA, retains such status beyond December 31 2014, provided that the jurisdiction continues to demonstrate firm resolve to sign the IGA that was agreed in substance on or before June 30 2014, as soon as possible," Ferris wrote.
Monthly review
After December 31, the Treasury will perform a monthly status review of those jurisdictions with an agreement in substance to see if they should stay on the list. Responsiveness to communications from the US and any doubts the jurisdiction raises about implementing the IGA would be important considerations for the Treasury in a decision about whether to remove a jurisdiction.
If the Treasury decides to remove a jurisdiction, any FFI and its branch from that location will lose the protection of the IGA from the first day of the month after the jurisdiction was removed and will have go through FATCA registration again.
Ferris also revealed that 11 jurisdictions who were in advanced discussions to conclude an IGA before June 30 2014, but were only able to do so after that date are now considered to have one in place.
"Despite the potential lack of notice upon which the status of a deemed IGA may change, the ability to continue to rely upon a model IGA should be beneficial to resident FFIs in those countries that seek to comply with FATCA," said Kristen Chang Winckler and Grace Minjeong Sur of Paul Hastings, the US law firm.
Intergovernmental agreements were unveiled in July 2012 to help overseas jurisdictions overcome any legal and privacy impediments to implementing FATCA, which requires FFIs to report information about certain payments to their US account holders to the US authorities or pay a withholding tax of 30%. Under a Model 1 IGA, the institutions report to their own governments who transmit the information to the US. Under a Model 2 version, the FFIs report directly to the IRS and Treasury.
