Newly signed CAAs facilitate FATCA data exchange between U.S.-U.K & Australia

To facilitate the exchange of Foreign Account Tax Compliance Act (FATCA) data under the intergovernmental agreements (IGAs) with Australia and the U.K., the U.S. Competent Authority has signed Competent Authority Arrangements (CAAs) with the Competent Authority of each country, announced IRS officials on September 24. The CAAs are the first of such arrangements to be signed and “[mark] another significant milestone in the international effort to gain proper reporting of offshore accounts and income”, said IRS Commissioner John Koskinen.

The U.S. Competent Authority expects that numerous other CAAs with additional competent authorities in IGA jurisdictions will be signed in the near future. Koskinen further added, “[t]ogether in partnership with other tax authorities, we are demonstrating how far we have come in the fight against offshore tax evasion”.

Background on FATCA. The Hiring Incentives to Restore Employment Act of 2010 (P.L. 111-147) added Chapter 4 (Code Sec. 1471 through Code Sec. 1474, FATCA) to the Code. Chapter 4 generally requires withholding agents to withhold tax on certain payments to a foreign financial institutions (FFI) unless the FFI has entered into an agreement (an FFI agreement) with the U.S. to, among other things, report certain information with respect to U.S. accounts. The withholding rules are essentially a mechanism to enforce new reporting requirements. Chapter 4 also imposes withholding, documentation, and reporting requirements on withholding agents, with respect to certain payments made to certain non-financial foreign entities.

In cases in which foreign law would prevent an FFI from complying with the terms of an FFI agreement, IRS has collaborated with other governments to develop two alternative model IGAs that facilitate FATCA implementation. Reporting financial institutions under an applicable Model 1 IGA (reporting Model 1 FFIs) would satisfy their Chapter 4 requirements by reporting specified information about U.S. accounts to their government, followed by the automatic exchange of that information on a government-to-government basis with the U.S. Under a Model 2 IGA, reporting Model 2 FFIs would report specified information about U.S. accounts directly to IRS in a manner consistent with the final regs (as modified by the applicable Model 2 IGA), supplemented by a government-to-government exchange of information on request.

According to Deputy Assistant Secretary for International Tax Affairs Robert B. Stack, “[t]o date, more than 110 jurisdictions are treated as having a FATCA agreement in effect with the United States and more than 160,000 financial institutions have registered with the IRS to comply”.

The U.S.-Australia agreements. On Apr. 28, 2014, the U.S. and Australia signed a Model 1 IGA entitled, “Agreement between the Government of the United States of America and the Government of Australia to Improve International Tax Compliance and to Implement FATCA” (the U.S.-Australia IGA). It requires the exchange of certain information with respect to U.S. and Australian reportable accounts on an automatic basis under Article 25 of the “Convention between the Government of the United States of America and the Government of Australia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income” (the U.S.-Australia income tax treaty).

Article 25 of the U.S.-Australia income tax treaty is entitled “Exchange of Information” and provides for the exchange of information between the U.S. and Australian Competent Authorities for purposes of implementing the provisions of the treaty or administering statutory provisions concerning taxes covered by the treaty. Article 25 also treats the information so exchanged as secret, among other things.

Article 3(6) of the U.S.-Australia IGA provides that the U.S. and Australian Competent Authorities will enter into an agreement or arrangement under Article 24 of the U.S.-Australia income tax treaty in order to establish and prescribe the rules and procedures necessary to implement certain provisions in the U.S.-Australia IGA.

Article 24 of the U.S.-Australia income tax treaty is entitled “Mutual Agreement Procedure” (MAP) and generally provides for cooperation between the U.S. and Australian Competent Authorities to resolve problems of double taxation. However, it also permits the U.S. and Australian Competent Authorities to address other matters regarding implementation of the treaty.

Consistent with the U.S.-Australia IGA and after consultations between the U.S. and Australian Competent Authorities, the two countries have reached the arrangement outlined in the aforementioned CAA (the U.S.-Australia CAA).

According to Paragraph 1 of the U.S.-Australia CAA, the CAA establishes the procedures for the automatic exchange obligations described in Article 2 and for the exchange of information reported under Article 4(1)(b) of the U.S.-Australia IGA. It also sets forth the information to be exchanged, among other things.

Note: In a September 23 press release, the Australian Taxation Office (ATO) has indicated that it has for the first time shared with IRS the FATCA data required under the U.S.-Australia IGA. According to the ATO, more than 30,000 financial accounts valued at more than $5 billion were provided to the U.S. Furthermore, the ATO indicated that starting in 2017, “close to 100 countries will be sharing non-resident data under the OECD Common Reporting Standard (CRS).”
The U.S.-U.K. agreements. On Sept. 12, 2012, the U.S. and the U.K. signed a Model 1 IGA entitled, “Agreement between the Government of the United States of America and the Government of the United Kingdom of Great Britain and Northern Ireland to Improve International Tax Compliance and to Implement FATCA” (the U.S.-U.K. IGA). It requires the exchange of certain information with respect to U.S. and U.K. reportable accounts on an automatic basis under Article 27 of the “Convention between the Government of the United States of America and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital Gains,” signed at London on Dec. 31, ’75 (the U.S.-U.K. income tax treaty). Article 27 of the U.S.-U.K. income tax treaty is entitled “Exchange of Information and Administrative Assistance” and provides for the exchange of information between the U.S. and U.K. Competent Authorities. “The information to be exchanged is that which is necessary to carry out the provisions of the Convention [i.e., the treaty] or the domestic laws of the United States or the United Kingdom concerning the taxes covered by the Convention [i.e., the treaty]”, according to Treasury’s Technical Explanation.

Article 3(6) of the U.S.-U.K. IGA provides that the U.S. and U.K. Competent Authorities will enter into an agreement or arrangement under Article 26 of the U.S.-U.K. income tax treaty in order to establish and prescribe the rules and procedures necessary to implement certain provisions in the U.S.-U.K. IGA.

Article 26 of the U.S.-U.K. income tax treaty is entitled “Mutual Agreement Procedure” (MAP) and generally provides the mechanism for taxpayers to bring to the attention of the U.S. and U.K. Competent Authorities issues and problems that may arise under the treaty. It also permits the U.S. and U.K. Competent Authorities to address other matters regarding implementation of the treaty.

Consistent with the U.S.-U.K. IGA and after consultations between the U.S. and U.K. Competent Authorities, the two countries have reached the arrangement outlined in the aforementioned CAA (the U.S.-U.K. CCA).

According to Paragraph 1 of the U.S.-U.K. CAA, the CAA establishes the procedures for the automatic exchange obligations described in Article 2 and for the exchange of information reported under Article 4(1)(b) of the U.S.-U.K. IGA. It also sets forth the information to be exchanged, among other things.