Time Extension For ‘In Substance’ FATCA IGAs
The United States Internal Revenue Service (IRS) has provided guidance with respect to jurisdictions that have been treated as if they had a Foreign Account Tax Compliance Act (FATCA) intergovernmental agreement (IGA) in existence, although that agreement has remained unsigned.
Under previous US transitional FATCA rules, IGAs reached in substance before July 1, 2014, can be treated as being in effect through to the end of 2014, as long as the IGA is signed on or before December 31, 2014.
Under the terms of a new announcement, a jurisdiction that has been treated as if it had an IGA in effect, but that has not yet signed it, will also retain such status beyond December 31, 2014, provided that the jurisdiction demonstrates firm resolve to sign the IGA as soon as possible.
However, after December 31, 2014, the US Treasury Department will review the list of jurisdictions having an agreement in substance on a monthly basis to assess whether it continues to be appropriate to treat such a jurisdiction as if it had an IGA in effect, or whether a jurisdiction should be removed from the list.
Congress enacted FATCA in 2010 to target non-compliance by US taxpayers using foreign accounts. It requires US financial institutions to withhold 30 percent of certain payments made to foreign financial institutions (FFIs) that do not agree to identify and report information on US account holders. Foreign governments have two options for complying with FATCA: they can either permit their FFIs to enter into agreements with the IRS, or they can themselves enter into IGAs with the US.
US Treasury has developed two alternative model IGAs. Under Model 1, FFIs report to their respective governments who then relay that information to the IRS. Under Model 2, FFIs report directly to the IRS to the extent that the account holder consents or such reporting is otherwise legally permitted, supplemented by information exchange between governments with respect to non-consenting accounts.
