Friday 18 January 2013

IRS issues "final" FATCA regulations amongst growing unease over IGAs


The IRS yesterday issued the long-awaited set of “final” regulations for FATCA (although technically they could still be changed at any time until published in the Federal Register, expected to be on 28th January).
FATCA was enacted by Congress in 2010 as part of the HIRE Act, and provoked an immediate backlash among many foreign banks, which have baulked at the complexity and cost of providing the information required to the IRS. Some attempt has been made by the IRS to address the concerns in the final regulations (such as by simplifying arrangements for groups of FFIs and clarifying the registration requirements for investment entities), but the provisions remain extremely onerous.
Key to the IRS’s attempts to streamline processes has been its efforts to conclude intergovernmental agreements (“IGAs”) with foreign governments, based on two different models.  The first model enables FFIs in jurisdictions that have signed Model 1 IGAs to report the information about U.S. accounts to their respective governments, who then exchange this information with the IRS, rather than having to enter directly into agreements with the IRS themselves. The second model IGA requires FFIs to register with the IRS and report the information about U.S. accounts required by FATCA directly to the IRS, and is designed solely to get round the fact that giving the information would be illegal absent a legal requirement for it to be done.
The IGAs themselves, however, are proving to be very controversial.  It is clear that they do not lessen the information gathering and reporting burden on the FFIs at all and, on one construction, they make the compliance burden considerably worse for US financial institutions, not better, as many of the agreements contain bi-lateral obligations requiring the US FFIs to share information on accounts held for citizens of the counter-party country.  In effect, it is introducing FATCA as a global template, despite the fact that it is widely opposed and not yet tested in practice.
Others are far more sceptical that the bi-lateral element of the IGAs is anything more than window-dressing, and do not believe that the US will ever deliver what they are demanding of others, citing in support the fact that Article 6 states that:
1.    Reciprocity. The Government of the United States acknowledges the need to achieve equivalent levels of reciprocal automatic information exchange with the United Kingdom. The Government of the United States is committed to further improve transparency and enhance the exchange relationship with the United Kingdom ""by pursuing the adoption of regulations and advocating and supporting relevant legislation"" to achieve such equivalent levels of reciprocal automatic exchange.”
So, in essence, the reciprocal element will happen if and when Congress decides to enact it (and bear in mind there will be a lot of lobbying against it from the US financial institutions who would bear the brunt of the burden).
So far, according to the US, 7 countries have signed or initialled IGAs (the UK, Mexico, Denmark, Norway, Ireland, Switzerland and Spain) and they claim to be in negotiation with around 50 more countries.  It is notable, however, that many important territories such as Germany, France, Italy and Spain do not yet appear to have signed up, despite stating their willingness to a year or so ago.  No word has been given for the length of time being taken to get them to the stage of signing agreements – perhaps a reflection of the complexity of the issues that are now being considered?

No comments:

Post a Comment