Corwin Says Lack of Information Exchange
Vehicle Need Not Bar FATCA Implementation
By Rick Mitchell
PARIS--At least three solutions exist to allow jurisdictions that have no tax information exchange arrangement with the United States to sign an intergovernmental agreement to implement the Foreign Account Tax Compliance Act, Treasury Deputy Assistant Secretary for International Tax Affairs Manal Corwin said Sept. 20.
“The absence of an information exchange vehicle [with the United States] is not a bar to applying intergovernmental approaches to implementing FATCA,” said Corwin. She added that information exchange can be addressed either directly within the intergovernmental agreement [IGA], by simultaneously signing a TIEA along with the IGA, or by using the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
Corwin, on a 12-day trip to Europe and Asia to discuss implementation of FATCA with major stakeholders, made her comments during a Paris briefing held jointly by the Organization for Economic Cooperation and Development and OECD's Business and Industry Advisory Committee (BIAC).
During the three-hour session, she and two other Treasury officials answered questions from financial institutions and their representative associations, in particular regarding the government-to-government information sharing model agreements (IGAs) that Treasury released in July.
Deadlines are nearing for the 2010 anti-tax-evasion law, which requires foreign financial institutions to inform the Internal Revenue Service about their U.S.-owned accounts, or potentially face a 30 percent withholding tax.
Tax officials from France, Germany, Italy, Spain, and the United Kingdom, the so-called G-5, also spoke about their countries' plans to implement FATCA during the session. On Sept. 14, Treasury announced it had signed a first IGA under FATCA with the United Kingdom.
Two Model Variations
The U.S. government in July released two variations of the IGA model, the first one based on work done with the G-5 countries. This so-called model 1 foresees that countries have automatic exchange of information provisions.
The model 1 agreement calls for foreign banks to report information to their own governments, which then communicate the data to the Internal Revenue Service, said Corwin. The agreement signed with the United Kingdom is such a model 1.
Under model 2 agreements, aimed more at countries that do not have automatic exchange provisions, the institutions report information on accounts directly to IRS. But for preexisting accounts, in jurisdictions where customer consent is a legal requirement, the institution can report aggregate data on so-called recalcitrant accounts to their own government, which then transmits it to IRS. IRS can then request more specific information from the jurisdiction, said Corwin.
Possible Situations Facing institutions Under FATCA
Corwin noted that financial institutions will be subject to FATCA whether or not governments of jurisdictions in which they are located have signed an IGA with the United States. When FATCA takes effect, institutions could find themselves in three possible circumstances, she said.
First, in a country that has not signed an IGA with the United States, the institution will have to deal with reporting obligations under the FATCA regulation on its own, or potentially face the 30 percent withholding penalty. If the country has signed an IGA, “the institution could find itself in a model 1 or model 2 situation,” she said.
She said that in her conversations with institutions and associations, she detected a general preference for an intergovernmental approach, and “there seems to be a significant preference for the model 1 approach than for the model 2 approach. The model 1 approach seems to be more efficient, from the perspective of institutions,” she said.
No Model 3
Corwin said there is no “model 3,” but the Treasury has considered the possible case of jurisdictions that have no TIEA or treaty mechanism to exchange information. “That does come up a lot in discussions with governments,” she said.
In the case of the reciprocal information exchange version of model 1, jurisdictions must have either a TIEA or an income tax treaty in place for the exchange of information to happen,” she said, adding, “In most cases it is difficult to [contemplate] that the reciprocal version of the model would apply if the jurisdiction doesn't have a TIEA [or treaty].”
She said that, even in non-reciprocal arrangements under models 1 or 2, in which the United States is only receiving information, the other jurisdiction must have a domestic vehicle that authorizes its government to provide the information to the United States.
Corwin said that, for such jurisdictions, the United States is willing to simultaneously enter into a FATCA agreement and also conclude a TIEA, “which for us is a fairly standard process and doesn't require ratification.” Another possibility is that specific information exchange language could be written into the IGA agreement, she suggested.
Use Multilateral Treaty
A third possibility is to use the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
The convention, originally limited in 1995 to members of the co-founders OECD and the Council of Europe, was opened to all countries in 2011 in an effort to make it a more effective tool for battling tax avoidance and evasion.
The updated convention allows administrative assistance on all types of taxes, including information exchange on request, automatic exchange of information, simultaneous tax examinations, and assistance in tax collection.
The United States has signed and ratified the original multilateral convention but has signed but not yet ratified the protocol update. “So we could use the convention to exchange information with OECD and Council of Europe countries,” Corwin said.
A Catalyst
OECD lists 37 signatories to the amended multilateral convention, including the United States, which has not yet ratified it. Of these, 17 have actually ratified the pact. Pascal Saint Amans, head of OECD's Center for Tax Policy and Administration, told BNA that information exchange issues could provide an impetus for more countries to join the updated multilateral convention.
He said he expects about 10 or so countries to sign the pact at the upcoming Oct. 26 meeting of the Global Forum on Transparency and Exchange of Information in Cape Town, South Africa, from among the forum's 113 members. “FATCA is a big catalyst toward an [eventual] multilateral platform for automatic information exchange, and the multilateral pact is definitely a piece in the patchwork of many pieces that will go into such a platform,” he said.
“FATCA is also providing a source of inspiration for other countries to implement similar legislation, which [among other things] would allow automatic information exchange,” Saint Amans said.
(Appeared Sept. 24, 2012)
