Treasury Official: Institutions Can Rely
On Signed IGAs to Plan for FATCA Reporting
By Rick Mitchell
PARIS--With deadlines nearing for the 2010 Foreign Accounts Tax Compliance Act, the United States says it will allow financial institutions in jurisdictions that have merely signed intergovernmental agreements (IGAs) to be governed by those agreements' stipulations on FATCA reporting requirements, even before jurisdictions have actually ratified and implemented the agreements, Treasury Deputy Assistant Secretary for International Tax Affairs Manal Corwin said Sept. 20.
FATCA aims to fight cross-border tax evasion by requiring foreign financial institutions to notify the Internal Revenue Service about their U.S.-owned accounts, or potentially face a 30 percent withholding tax.
Corwin said U.S. officials are aware that institutions, as they prepare to comply, are worried that they might be compelled to prepare for “multiple” time frames for the FATCA regulations on one hand, and, on the other, jurisdictions' varying plans to sign and ratify intergovernmental FATCA implementation agreements and these jurisdictions' differing legislative procedures.
In response, the United States plans to work with partner jurisdictions to develop language that can be inserted, on a jurisdiction-by-jurisdiction basis, into IGAs that will allow “institutions in a jurisdiction with a signed IGA [to] rely on that [agreement] for purposes of how the United States will treat the institution with regards to FATCA,” said Corwin.
The arrangement will only apply to jurisdictions that have signed IGAs that give the United States a clear picture of how they intend to implement FATCA within the U.S. time frame. “Financial institutions should be able to benefit from that kind of mutual understanding, and we can make that happen for any interested jurisdictions,” said Corwin.
Paris Conference
Corwin, on a 12-day trip to Europe and Asia, made her comments during a special FATCA briefing for financial institutions, their associations, and other stakeholders, held jointly by the Organization for Economic Cooperation and Development and OECD's Business and Industry Advisory Committee at OECD headquarters in Paris. At that briefing, Corwin also said 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 FATCA.
During the three-hour session, tax officials from the so-called Group of Five countries, France, Germany, Italy, Spain, and the United Kingdom, told the conference about their countries' varying plans for signing and ratifying IGAs and implementing FATCA.
The U.S. government in July released two variations of the IGA model—the first one, model 1, based on work with the G-5 and foreseeing that countries have automatic exchange of information provisions, as the G-5 all do. 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.
France and Spain said they aim to sign IGAs soon and to have laws implementing their agreements by Jan. 1, 2013. The United Kingdom, which recently became the first country to sign an IGA, a model 1, said it hopes to publish a draft law implementing the agreement by year's end and a law later next year, while Italy and Germany said they also hope to have their agreements in force later in 2013.
Pressure to Sign as Soon as Possible
Corwin noted that financial institutions are subject to FATCA whether or not the jurisdiction they are located in has signed an IGA. She said the U.S. government is aware that institutions are concerned that the impending U.S. schedule for the FATCA regulations, combined with countries' varying plans to sign IGAs and then ratify and implement them, could force them to prepare for multiple FATCA implementation time frames.
But she said the time frames that G-5 countries have put forward for their FATCA implementation, combined with signed agreements, make for a common understanding about their legislative processes, and “a comfort” that these processes are completely consistent with the time frame that the United States will require for reporting under FATCA.
“Our expectation is that, with those [G-5] time frames, that financial institutions in a jurisdiction with a signed IGA can rely on that agreement for purposes of how the United States will treat the institution under FATCA. You will see some language that we are able to develop in that regard as we sign agreements,” she said.
“That will also allow us to make adjustments if there is an unexpected issue that comes up,” she said, adding that because agreements must be signed, that puts pressure on jurisdictions to sign as soon as possible.
G-5 Implementation Schedules Vary
Radhanath Housden, senior policy adviser with the international tax team at Her Majesty's Treasury, described a “drawn out road” ahead to convert the United Kingdom's signed IGA into a U.K. law that has domestic force. He said the government plans to publish a draft law by year's end, and institutions can comment on it.
Neil Higgins, a U.K. H.M. Revenue and Customs official, said the government is working with institutions and their representatives on developing guidance, on possible IT solutions, and is also about to enter into a competent authority agreement with the United States.
French IGA ‘Within Weeks.'
Pierre Olivier Pollet, principal tax inspector at the French Public Finances Directorate, said the country has been negotiating an IGA with the United States for weeks, is now addressing annex 2 of the agreement, and will likely sign the agreement “in a few weeks.”
The agreement itself needs no ratification, but its implementation will require changing French law and “we hope to do that by the end of the year. We are studying with various departments of the tax directorate this implementation and we are also working with IT systems to ensure all aspects of the change will be taken by end of the year,” Pollet said.
Things are likely to take longer in Italy, where just the signature of an IGA “could be a very big process … that depends on the Ministry of Foreign Affairs, not just the Finance Ministry,” said Enrico Martino, director of international relations at Italy's Ministry of Economy and Finance.
Martino said the agreement itself requires translating and some further negotiation, and unlike France, Italy will require a process of ratification for the agreement, after which a ministerial decree would bring its provisions into law. “Italy has a tradition of long ratification processes, but in this case we will try to be quicker,” said Martino.
He noted that Italy already has automatic exchange provisions, so “only a small part of existing law needs to be changed, and the rest will be regulated by the agreement.”
A Few Things to Check
Spain hopes to have its IGA in place and enforceable by Jan. 1, 2013, but it is still studying implications of several of FATCA's requirements, said Mary Antoinete Musilek, coordinator for international taxation at the country's General Directorate of Taxation.
The country has nearly finished translating its IGA, after which it will go to Parliament for ratification in an expedited process. Spain already requires its financial institutions to regularly report tax-related data, “so we might not have to make too many changes to implement FATCA,” she said.
However, the country is studying the issue, and also considering implications of reporting time limits under FATCA, as well as penalty regimes for significant non-compliance, and details of the related agreement between U.S. and Spanish competent authorities, she said.
Importance of Reciprocity
Germany hopes to have an IGA in force by the summer of 2013, said Dieter Eimermann, tax department deputy head of the international division, at the Federal Ministry of Finance.
He said Germany decided to work on the IGA model with the United States and other G-5 countries, because it supported objectives released in their February joint declaration, for a need for measures against abuse and cross-border tax evasion.
“It was also important for the United States to acknowledge the importance that equivalence and reciprocity should be achieved, which is partly there right now, “ he said.
“We are currently working with the United States to complete a bilevel agreement, including annex 2, and hoping to have this done over the next few weeks,” he said.
‘Broader Scope.'
Corwin said the United States is in advanced discussions with several EU jurisdictions interested in signing IGAs. Most of the 27 EU member countries have already expressed an interest, either officially or unofficially, in “engaging us on FATCA, and many have expressed a willingness to conclude an IGA with us.”
“But we are focused much more broadly than Europe,” she said, noting that starting on the week of Sept. 24 she and other U.S. officials will attend a meeting hosted by Singapore's government, as well as a business meeting of Asian financial institutions and associations.
“We also have bilateral meetings planned with countries in that regions, [and] conversations with countries in other parts of the world,” said Corwin.
(Appeared Sept. 25, 2012)
