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  • Service: Tax, Financial Services
  • Industry: Financial Services
  • Type: Newsletters
  • Date: 11/18/2013

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Gerard Laures
Partner
+352 22 51 51 5549
gerard.laures@kpmg.lu

 

Frank Stoltz
Partner
+352 22 51 51 5520
frank.stoltz@kpmg.lu

FATCA e-alert Issue 2013-28 

November 2013

France and United States sign agreement

 

Representatives of the governments of France and the United States signed a FATCA intergovernmental agreement (IGA) on 14 November 2013.

 

Read text of the FATCA agreement (PDF, 557 KB) signed by France and the United States.

  


 

IGA Models 1 & 2 Revised

 

On 4 November 2013 the U.S. Treasury released revised model intergovernmental agreements (IGAs) and posted them to its internet website. The models serve to provide a standard for each type of IGA released to date for negotiation between the United States and another country as an alternative to compliance under the U.S. Foreign Account Tax Compliance Act (FATCA) regulations. Highlights of the revised IGAs follow.

 

“Regularly Traded” Exception

 

Pursuant to Article I –“Definitions,” the term “Financial Account” includes, in the case of an Entity that is a Financial Institution solely because it is an Investment Entity, any equity or debt interest (other than interests that are regularly traded on an established securities market) in the Financial Institution. The revised Model I and II IGAs include additional language in the definition of “Financial Account” to clarify that an interest is “regularly traded” if there is a meaningful volume of trading with respect to the interest on an ongoing basis. The term “established securities market” means an exchange that is officially recognized and supervised by a governmental authority in which the market is located and that has a meaningful annual value of shares traded on the exchange.

 

Furthermore, an interest in a Financial Institution is not “regularly traded” and will be treated as a Financial Account if the holder of the interest (other than a Financial Institution acting as an Intermediary) is registered on the books of the Financial Institution. This rule will not apply for interests registered on the books of the Financial Institution prior to 1 July 2014. For interests that are registered on the books of the Financial Institution on or after 1 July 2014, the Financial Institution does not have to apply this rule until 1 January 2016.

 

Definition of “Specified U.S. Person”

 

The revised Model I and II IGAs also updated the definition of a “Specified U.S. Person” to exclude any tax-exempt trust under a plan that is described in section 403(b) or 475(b) of the U.S. Internal Revenue Code. This change is consistent with the regulations under section 1473 of the U.S. Internal Revenue Code.

 

Special Rules Regarding Related Entity

 

Paragraph 5 of Article 4 of the Model 1 IGA and Paragraph 5 of Article 3 of the Model 2 IGA (“Application of FATCA to [FATCA Partner] Financial Institutions”) provide that a Financial Institution that is treated as a deemed-compliant FFI or as an exempt beneficial owner under the Model 1 or Model 2 IGA will not lose such status if the Financial Institution has a Related Entity or Branch that operates in a jurisdiction that prevents such Related Entity or branch from fulfilling the requirements of a participating FFI or deemed-compliant FFI, provided that the Financial Institution and the Related Entity or branch satisfy certain requirements.

 

The revised Model 1 and Model 2 IGAs include additional language that provides that such a Financial Institution also will not lose its status just because it has a Related Entity or branch that is treated as a Nonparticipating FFI solely because the U.S. regulatory transitional rule for limited FFIs and limited braches has expired, provided that the Financial Institution and the Related Entity meet certain requirements.

 

Competent Authority Inquiries

 

Article 5 (“Collaboration on Compliance and Enforcement”) of the Model 1 IGA has been updated to provide that a competent authority will notify the competent authority of the other party when the first-mentioned competent authority has reason to believe that administrative or other minor errors may have led to incorrect or incomplete reporting or other infringements and that the competent authority of the other party will apply its domestic law to obtain corrected or complete information or resolve the infringements. Prior versions had provided that, subject to the terms of a competent authority agreement, a competent authority could directly contact the Financial Institution in the other jurisdiction in such cases.

 

Revised Annexes

 

Treasury also released revised standardized Annexes I and II to the Model 1 and Model 2 IGAs.

 

Annex I

 

  • Date for Determination of Balance or Value
    The revised Annex I for a Model 1 agreement states that when a balance or value threshold is to be determined as of 30 June 2014, the relevant balance or value shall be determined as of that day or the last day of the reporting period ending immediately before 30 June 2014. The prior version only referred to the last day of the reporting period ending immediately before 30 June 2014. The revised version also provides that where a balance or value threshold is to be determined as of the last day of a calendar year, the relevant balance or value shall be determined as of the last day of the calendar year or other appropriate reporting period. The prior version provided that such determination was to be made on the last day of the reporting period that ended with or within the relevant calendar year.
  • “Regularly Traded” Exception for NFFEs. The revised Annex I to the Model 1 and Model 2 IGAs also clarifies in the definition of the term “Active NFFE” that an Entity is treated as an Active NFFE if it is a Related Entity of an Entity the stock of which is regularly traded on an established securities market (the prior version had omitted the word “regularly”).

 

The revised Annex I to the Model 2 IGA also provides that interests are “regularly traded” if there is a meaningful volume of trading with respect to the interests on an ongoing basis, and that an “established securities market” means an exchange that is officially recognized and supervised by a governmental authority in which the market is located and that has a meaningful annual value of shares traded on the exchange. Similar language was not added to Annex I of the Model 1 IGA, but the definitions of “regularly traded” and “established securities market” in the body of the Model 1 IGA appear to carry over to the Annex.

 

Annex II

 

  • Annex II contains the list of products and entities that are “carved out” of the FATCA requirements because they pose a low risk of use for tax evasion.
  • The revised Annex II provides that the Annex II may be modified by a mutual written decision entered into between the competent authorities of the FATCA partner and the United States. Prior versions had required a “mutual agreement” to amend the Annex II.

 

For your reference

 

The revised IGA’s can be accessed by clicking here:

 

 

 

For further information, please do not hesitate to contact us.

 

 

 

 

 

 

 

Any tax advice in this communication is not intended or written by KPMG to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing, or recommending to another party any matters addressed herein.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

 

 

 

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