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The Foreign Account Tax Compliance Act is the most significant legislation enacted to date in the area of offshore account compliance. The United States has aggressively sought to implement FATCA, obtaining Intergovernmental Agreements with a number of nations and we expect that many more nations will enter into such agreements with the U.S.

This FATCA Watch page will be updated frequently to provide the latest information about FATCA implementation and FATCA-related Intergovernmental Agreements between the United States and other countries.

The experienced tax lawyers at Brown, PC are available to discuss any FATCA-related issues you may have and to assist and counsel you in keeping your offshore accounts compliant. We have counseled clients across the globe on FATCA and offshore account compliance. Contact Brown, PC toll free at 888-870-0025 to schedule a highly confidential consultation.

Implementation of FATCA

The key challenge of implementing FATCA is compelling foreign financial institutions to disclose the required information to U.S. authorities, particularly in countries, such as Switzerland, where disclosing such information violates the privacy laws of that country. To clarify, FATCA itself is a U.S. law, and the U.S. government cannot require foreign financial institutions to comply with U.S. laws. So, the U.S. must work with foreign governments to establish agreements that result in those foreign governments enforcing the terms of FATCA upon their own financial institutions. On November 8, 2012, the United States Department of the Treasury announced that it was in the process of negotiating agreements with more than fifty countries around the world regarding the implementation of FATCA. As of March 2014, Intergovernmental Agreements (IGAs) have been reached with thirty-three countries, including all G7 countries.

Two types of IGAs are being used to facilitate the exchange of information. Under the first IGA model, financial institutions in the partner country use due diligence rules contained within the IGA to identify U.S. account holders. They report the information to the tax agency in their country, which then provides it to the Internal Revenue Service on an automatic basis. This exchange may be reciprocal, with the United States also sharing information with the partner country about that country’s taxpayers who hold accounts in the United States.

Under the second IGA model, the foreign financial institutions report information directly to the Internal Revenue Service, without an intermediary. To accommodate this, the partner country must agree to relax laws that would otherwise prohibit the financial institutions from sharing such information. Intergovernmental Agreements have been reached with the following jurisdictions or countries:

United Kingdom – September 12, 2012

Following a joint statement on February 7, 2012, by the United States, United Kingdom, France, Germany, Italy, and Spain, about taking an intergovernmental approach to improving international tax compliance and implementing FATCA, the UK became the first country to sign an Intergovernmental Agreement with the U.S. to implement FATCA. This agreement is reciprocal, and the U.S. has committed to pursuing equivalent levels of information exchange. While U.S. laws do not allow authorities to collect certain information sought by the U.K., particularly with regard to entities, the U.S. is actually providing the U.K. with a broader scope of information related to individual accounts than the U.K. is providing to the U.S. The agreement contains a “most favored nation” clause, which will extend to the U.K. any more favorable terms that the U.S. negotiates with other countries in the future.

Denmark – November 19, 2012

The Intergovernmental Agreement with Denmark is virtually identical to the one with the United Kingdom and also includes a “most favored nation” clause. The agreement exempts certain financial institutions from the due diligence requirements, including institutions with local client bases and no fixed place of business outside of Denmark, as well as certain collective investment vehicles, nonprofit organizations, and housing cooperatives.

Mexico – November 19, 2012

The agreement with Mexico calls for financial institutions to perform due diligence and provide information related to U.S. account holders to the Mexican Ministry of Finance and Public Credit, which then automatically turns it over to the Internal Revenue Service. It is reciprocal and calls for the U.S. to provide the following information related to Mexican residents with accounts in the U.S.: name, address, Mexican taxpayer identification number (TIN), the name of the financial institution and the related account number, and the gross amount of interest or other U.S. source income paid or credited to the account. On April 17, 2014, Mexico and the United States signed a revised IGA.

Ireland – January 23, 2012

Irish financial institutions must provide the required information to the Irish Revenue Commissioners, which will then provide it to the IRS on an automatic basis. On March 27, 2013, Ireland enacted their Finance Act 2013, which introduced provisions for local law implementation.

Switzerland – February 14, 2013

This Intergovernmental Agreement with Switzerland is in addition to the deferred prosecution agreements that the U.S. Department of Justice has reached with over 100 Swiss Banks, requiring them to turn over information related to their American clients. Some politicians in Switzerland, as well as citizen organizations like the Lobby des Citoyens, sought to have approval of the Intergovernmental Agreement put to a referendum, as bank secrecy has long been a hallmark of Switzerland. These efforts, however, fell short of the 50,000 signatures required.

Norway – April 14, 2013

On April 15, 2013, Norway became the sixth country to sign an Intergovernmental Agreement with the United States. This reciprocal Model 1 agreement was the first with a “Coordination of Timing” provision, which states that neither party is obliged to provide information until the other is able to do the same. Countries who had previously signed an IGA containing a “Most Favored Nation” clause also benefit from this new provision. On October 14, 2013, the Norwegian government proposed new legislation to implement FATCA in Norway.

Spain – May 14, 2013

The reciprocal Model 1 Intergovernmental Agreement with Spain calls for each country to provide information to their respective tax agencies, which then automatically turn it over to the other country in a standardized manner.

Germany – May 31, 2013

Germany is one of five countries that issued a joint statement with the United States committing to intergovernmental cooperation to combat tax evasion. The Agreement exempts certain financial institution from the due diligence requirements, including small financial institutions with local client bases, as well as certain collective investment vehicles.

Japan – June 11, 2013

The United States and Japan issued a “Statement of Mutual Cooperation,” wherein they committed to exchange information with each other in an effort to reduce tax noncompliance. The statement is intended to be implemented consistently with existing laws and is not to be interpreted to create any legal obligations.

France – November 14, 2013

France became the tenth country to sign an Intergovernmental Agreement with the United States on November 14, 2013. This was the first IGA signed in more than five months and helped to accelerate negotiations with many other countries. In the four months following the Agreement with France, the United States successfully concluded negotiations with fifteen other countries.

Costa Rica – November 26, 2013

Costa Rica was one of the three Central American countries labeled as a tax haven by the Organization for Economic Co-operation and Development (OECD), alongside Panama and Belize. This Agreement is reciprocal.

Cayman Islands – November 29, 2013

The Cayman Islands has long been a popular tax haven, as the island nation of 57,000 people has no income tax. Notably, this Agreement is not reciprocal, meaning the United States has no obligation to provide any information to the Cayman Islands regarding their citizens with accounts at American financial institutions.

Guernsey, Jersey, Isle of Man – December 13, 2013

Guernsey, a British Crown dependency located off the northern coast of France, first signed a Tax Information Exchange Agreement (TIEA) with the United States in 2002. The Intergovernmental Agreement signed on December 13, 2013 provides for a broader exchange of information on a reciprocal basis. Two other British Crown Dependencies, Jersey and Isle of Man, signed similar agreements on the same day. All three have since drafted regulations to implement the agreements.

Malta – December 16, 2013

On December 16, 2013, Malta signed a Model 1 reciprocal agreement, calling for each party to provide taxpayer information to their respective tax authorities, which will then exchange the information on an automatic basis.

Netherlands – December 18, 2013

The Netherlands and the United States signed a reciprocal IGA on December 18, 2013. The agreement, which is set to commence in September 2015, exempts certain Dutch financial institutions from the requirements, including those with local client bases, certain pension funds, nonprofit organizations, and certain collective investment vehicles.

Bermuda – December 19, 2013

The Intergovernmental Agreement signed by Bermuda on December 19, 2013, is one of only a few Model 2 agreements. This IGA requires that Bermudian financial institutions report information about their American account holders directly to the Internal Revenue Service, on a non-reciprocal basis. Bermuda has long been a popular destination for corporations and individuals seeking to avoid taxes, due to its general use of consumption taxes in lieu of income taxes.

Mauritius – December 27, 2013

On December 27, 2013, Mauritius signed a reciprocal IGA with the U.S. to exchange tax information in accordance with FATCA. To date, Mauritius is the only African country to sign such an agreement. This marks a departure from the country’s efforts to attract foreign investment through its generous tax laws, branding itself as the “Gateway to Africa.”

Italy – January 10, 2014

Italy signed a Model 1 reciprocal agreement on January 10, 2014. It was among five European countries joining the United States in a 2012 Joint Statement committing to the reciprocal exchange of information to combat tax evasion.

Hungary – February 4, 2014

A Model 1 reciprocal agreement was signed with Hungary on February 4, 2014. The agreement exempts certain Hungarian financial institutions and accounts from the requirements, including accounts held by an estate, certain escrow accounts, financial institutions with local customer bases, and certain term life insurance contracts.

Canada – February 5, 2014

The Model 1 reciprocal agreement with Canada calls for the exchange of information between the Internal Revenue Service and the Canada Revenue Agency (CRA). The deal was strongly opposed by certain Canadian lobby groups, like the Isaac Brock Society, which cited privacy concerns. This group leaked the CRA’s guidance notes to the draft legislation that would implement the Intergovernmental Agreement. According to the Isaac Brock Society, the guidance notes suggest that the CRA intends to undermine the reporting requirements imposed by FATCA. For example, FATCA requires that Canadian financial institutions perform due diligence to determine whether or not an account holder has a U.S. place of birth. Section 8.26 of the guidance notes states that “an unambiguous indication of U.S. place of birth must include identification of the U.S. as the county of birth. Identification of a city and/or a state as the place of birth, without identification of the country of birth as the U.S., is not considered to be unambiguous.” In other words, an account holder listing “New York, NY” as his place of birth would not be considered to have unambiguously been born in the United States, and Canadian financial institutions would not turn over information related to such an account holder, whereas an account holder listing “New York, NY, USA” as his place of birth would be. There is debate as to whether or not such legislation, if passed, would satisfy the requirements of FATCA.

Chile – March 5, 2014

On March 5, 2014, Chile and the United States signed a non-reciprocal Model 2 Intergovernmental Agreement, which will require that Chilean financial institutions provide information related to U.S. taxpayers directly to the Internal Revenue Service. Due to restrictions of Chilean law, Chilean financial institutions will only be able to provide limited information about “recalcitrant” account holders who do not consent to the transmission of their data to the IRS. Such account holders will instead be subject to a 30% withholding penalty. However, a double taxation treaty which is currently in the process of being ratified will remove this restriction. Chile is among the largest recipients of foreign direct investment from the United States, with $34 billion as of the end of 2011.

Finland – March 5, 2014

Finland is the latest country to sign an Intergovernmental Agreement to implement FATCA, signing on the same day as Chile. The reciprocal Model 1 agreement requires Finnish financial institutions to provide data to the Ministry of Finance, which will then provide it to the IRS on an automatic basis.

Luxembourg – March 28, 2014

Luxembourg signed a reciprocal Model 1 agreement for the automatic exchange of information on a reciprocal basis. The government of Luxembourg stated that, “This decision will put Luxembourg’s relations with the US in line with its declaration of 10 April 2013, by which Luxembourg announced that it will introduce, on 1 January 2015, and within the scope of the 2003 EU Savings Directive, the automatic exchange of information within the European Union.” Luxembourg had long been cited as an example of a classic tax haven, with strict bank secrecy laws. As of 2013, the country of 593,000 people had around 130 banks holding approximately $350 billion, mostly from foreigners.

Honduras – March 31, 2014

The Model 1 agreement with Honduras calls for the reciprocal exchange of information on an automatic basis. Income tax rates in Honduras are lower than those in the United States, and capital gains are taxed at a fixed rate of 10%, making Honduras an appealing destination for foreign investors.

Estonia – April 11, 2014

On April 11, 2014, the United States and Estonia signed a Model 1 reciprocal agreement. The two countries previously signed a tax treaty in 1998, providing for exchange of information and protection from double-taxation.

Belgium – April 23, 2014

Belgium signed a Model 1 reciprocal agreement with the United States, with Finance Minister Koen Geens saying that he looks forward to seeing improved enforcement of international tax laws, and expressing relief that Belgian financial institutions will not be subjected to the 30% withholding tax on U.S. source payments that will be imposed on institutions that are not compliant with FATCA. The exchange of information is scheduled to start in September 2015.

Australia – April 28, 2014

The United States and Australia inked a Model 1 reciprocal agreement in Canberra, on April 28, 2014. Australian Treasurer Joe Hockey said that the agreement will, “improve existing tax information-sharing arrangements between Australia and the US, for the purpose of preventing tax evasion. This will help to enhance the integrity of both countries’ tax systems.” It is estimated that around 100,000 Australian natives live in the United States, and around 63,000 U.S. natives live in Australia.

Austria – April 29, 2014

Austria became the fifth and latest country to sign a Model 2 IGA, under which financial institutions provide information directly to the Internal Revenue Service. Austria was initially resistant, with banks and insurance companies fearing a wave of litigation from affected customers for breach of the Privacy Act, which prohibits the disclosure of certain personal information. The agreement with the United States has also drawn attention from the European Union, which has thus far been unable to get Austria to share similar information with other EU countries.

Jamaica – May 2, 2014

In 2012, The Jamaican Financial Services Commission and the Bank of Jamaica surveyed financial institutions to evaluate which model IGA was preferred, and the findings showed a preference for the Model 1 Agreement. The United States and Jamaica previously reached an agreement in substance, which allowed Jamaican financial institutions to register with the IRS and avoid mandatory withholding once FATCA takes effect. On May 2, 2014, a Model 1 IGA was formally signed.

Gibraltar – May 8, 2014

Although it is a British overseas territory, Gibraltar is a separate legal jurisdiction and has its own tax system. In the past, Gibraltar has been identified by the OECD as a tax haven. Gibraltar and the United States formally inked a Model 1 IGA, which they had previously agreed to in substance.

Slovenia – June 2, 2014

The United States and Slovenia signed a Model 1 IGA on June 2, 2014. The Central European country had previously reached an agreement in substance with the U.S. in January, but needed approval by the National Assembly. This should come as a relief to the country’s struggling banking sector, which was hit hard by the global financial crisis. Without an agreement in place, Slovenian financial institutions would be subject to an automatic 30% withholding penalty on all payments from the United States.

Agreed in Substance

With FATCA’s scheduled start date of July 1, the United States Treasury and foreign governments are scrambling to reach agreements. In Announcement 2014-17, the IRS gave guidance to financial institutions in countries that have not yet signed an IGA, but who had reached an agreement with the United States in substance. These financial institutions, who register with the IRS and receive their Global Intermediary Identification Number (GIIN) will avoid being subjected to an automatic 30% withholding on all payments from U.S. source income, when FATCA takes effect.

The following countries have reached agreements with the United States in substance, which allows their financial institutions to comply with FATCA and avoid being subjected to the 30% withholding penalty, with Intergovernmental Agreements to be formally signed by the end of the year: Armenia, Bahamas, Barbados, Brazil, British Virgin Islands, Bulgaria, Colombia, Croatia, Curacao, Cyprus, Czech Republic, Hong Kong, India, Israel, Kosovo, Kuwait, Latvia, Liechtenstein, Lithuania, New Zealand, Panama, Peru, Poland, Portugal, Qatar, Romania, Seychelles, Singapore, Slovakia, South Africa, South Korea, Sweden, Turkey, Turkmenistan, and United Arab Emirates.

Other Countries Join Negotiations

Other countries actively engaged in negotiations with the U.S. Treasury include: Argentina and Malaysia. Countries that are not currently engaged in negotiations, but with whom the U.S. Treasury is exploring options, include: Lebanon and Saint Maarten. In December 2012, the Treasury also participated in a meeting with senior government officials and financial institutions in the Gulf Cooperation Council, hosted by the Qatar Central Bank.

On May 14, 2013, seventeen member states of the European Union released a joint statement expressing their intention to undertake an initiative similar to FATCA. A month later, G8 leaders determined that the FATCA Intergovernmental Agreements should be the framework on which to base a model.

Russia – Negotiations Suspended

On March 26, 2014, Russian Finance Minister Anton Siluanov said that recent tensions between Moscow and Washington over the situation in Ukraine would not derail negotiations to implement FATCA. However, on April 29, Senators Carl Levin (D-Michigan) and John McCain (R-Arizona) wrote to Treasury Secretary Jack Lew, urging the suspension of negotiations. They wrote that “refraining from negotiations for Russian banks to avoid the 30% FATCA penalty would place financial pressure upon Russia, and help reinforce diplomatic efforts to avoid military action”. Russian banks fear a decrease in their competitiveness, which could lead to a big capital flight.

FATCA Attorneys Representing Clients throughout the World

If you have questions about how FATCA or any of the FATCA-related Intergovernmental Agreements will affect you and your accounts, contact Brown, PC toll free at 888-870-0025 to schedule a highly confidential consultation. We have successfully represented clients throughout the United States and the world in a variety of offshore account compliance matters.

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