Final US Regulations
The Final US FATCA Regulations were issued 17 January 2013 and require FFIs to enter into an Agreement with the IRS by 1 July 2014 to report information on accounts held by US persons and certain US controlled foreign entities. This involves direct reporting by the FFI to the IRS. Failure to comply with the US FATCA Regulations will result in a 30% withholding tax penalty on all US source withholdable payments (as defined) made to those who are not compliant beginning 1 July 2014.
Alternative Approach via an IGA
Intergovernmental Agreements (“IGAs”) are agreements between the US and other countries that provide an alternative way to comply with the US FATCA Regulations. IGAs help to reduce the burden of FATCA reporting requirements and address potential legal and data protection impediments of FATCA implementation under the US FATCA Regulations. Failure to comply with the IGA may still result in a 30% withholding tax penalty, however only in very limited circumstances.
A Model I IGA was released on 26 July 2012 and requires FFIs to report information on accounts held by US persons and certain US controlled foreign entities directly to the local tax authority in their own jurisdiction, with the local tax authority then reporting to the IRS. To date, the US Treasury Department has signed Model I IGAs with the Cayman Islands, Costa Rica, Denmark, France, Germany, Ireland, Mexico, Norway, Spain and the UK, and has initialled a Model I IGA with Italy. Many more countries are expected to follow suit in the coming months.
A Model II IGA was released on 14 November 2012 and requires FFIs to enter into an FFI Agreement and report information directly to the IRS. To date, the US Treasury Department has signed a Model II IGA with Japan and Switzerland.
Evolution of Ireland’s IGA
The IGA between Ireland and the US was signed on 21 December 2012. Ireland’s IGA is broadly similar to the UK IGA signed in September 2012. Notably, all IGA’s contain a “favoured nation” clause permitting the country to avail of any more favourable terms included in IGA’s subsequently negotiated by other countries with the US. Also, Ireland’s IGA will not cover foreign subsidiaries or branches of an Irish FFI, as they will be governed by arrangements in the foreign territory where they are tax resident.
Ireland’s Finance Act 2013
Finance Act 2013 (“the Act”) introduced a provision to import Ireland’s IGA that was signed on 21 December 2012 with the US into Irish domestic tax law. The Act also gives the Revenue Commissioners the power to make regulations, including (i) the requirement for financial institutions to register in circumstances specified in the regulations; (ii) the completion of a return by a registered financial institution of information on accounts held, managed, or administered by that financial institution and (iii) the completion of a return by a registered financial institution of information on payments made to a non-participating financial institution.
Draft Regulations and Guidance Notes on FATCA were released mid May 2013 for commentary by the Irish Revenue Commissioners and are expected to be finalised later this year. The provisions outlined in the draft Regulations and Guidance Notes set out the framework for how Ireland will comply with its obligations under FATCA.
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