• Type: Publication series
  • Date: 11/27/2012

Recent FATCA developments 


Ionut Mastacaneanu

Senior Manager,
Taxation services

On 19 November, the US tax authority (Internal Revenue Service - IRS) released in issue no. 2012-47 of its weekly publication – the Internal Revenue Bulletin – new instructions for the "Foreign Account Tax Compliance Act" (FATCA), in the form of Announcement 2012-42.  

This announcement outlines certain timelines for withholding agents and foreign financial institutions (FFIs) to complete due diligence. Furthermore, the Announcement offers additional guidance concerning gross proceeds withholding and the status of certain instruments as “grandfathered obligations” (obligations existing at 1 January 2013, to be exempt from FATCA withholding). The Announcement also expressly states that the Department of the Treasury and the IRS intend to incorporate these rules into the final regulations addressing FATCA. Financial institutions expect a new set of regulations by the end of the current year or during January 2013, at the latest, although it is not known if this will be the final set of regulations.


Announcement 2012-42 addresses certain practical issues in implementing the FATCA rules. These issues were identified by financial institutions with regard to provisions in the proposed regulations, published on 15 February 2012. The implementation problems that were pointed out cover subjects such as: global financial institutions intending to implement uniform due diligence procedures for all affiliates (branches, subsidiaries, etc.), classification of account holders during 2013, treatment of “passthru payments” made before the release of the final regulations, treatment of payments with respect to collateral posted in connection with a grandfathered derivative transaction. Comments received by the IRS suggest aligning the timelines for due diligence for U.S. withholding agents, FFIs in countries with Intergovernmental Agreements (IGA), and FFIs in countries without Intergovernmental Agreements to significantly reduce administrative burden.


The main rules set forth in the Announcement encompass:

1. Revised due diligence timelines (implementation of new account opening procedures is required by 1 January 2014).
2. Due date for the first report of a participating FFI with respect to U.S. accounts for 2013 and 2014 (moved to 31 March 2015).
3. Gross proceeds withholding for sales or other dispositions occurring after 31 December 2016.

FATCA basics and recent worldwide developments


On 18 March 2010, the IRS published the HIRE Act (Hiring Incentives to Restore Employment Act), which added new sections to the U.S. Internal Revenue Code. These provisions are commonly referred to as the Foreign Account Tax Compliance Act, or FATCA. According to FATCA, FFIs refusing to enter into an agreement with the IRS to, among other things, report certain information with respect to U.S. accounts, will be penalized by having 30 percent of certain payments made to them withheld.


Eventually, on 15 February 2012, the Treasury Department and the IRS published proposed regulations for implementing FATCA, followed, on 26 July 2012, by the Treasury releasing a model for bilateral agreements with other jurisdictions (in both reciprocal and nonreciprocal versions).  Under these agreements, FFIs would satisfy their reporting requirements by reporting information about U.S. accounts to their respective tax authorities, followed by the automatic exchange of that information on a government-to-government basis with the United States. More recently, on 14 November 2012, the Treasury Department released a second model agreement, under which financial institutions in the partner jurisdiction are to report specified information directly to the IRS in a manner consistent with the FATCA regulations, supplemented by government-to-government exchange of information on request. The U.S. Treasury Department intends to conclude bilateral agreements (“Intergovernmental Agreements”) based on these model agreements. At the moment, the only countries to have signed a bilateral Model 1 IGA with the U.S. are the United Kingdom (on 12 September 2012), Denmark and Mexico (both on 19 November 2012).


During the past few weeks, there have been several announcements about the state of international negotiations. On 8 November, the Treasury Department had made an announcement on the situation of the discussions carried out with countries all around the world, after, one day earlier, the press desk of the Australian Treasury announced that it is officially exploring the feasibility of an intergovernmental agreement with the U.S. More than 50 countries are engaged in discussions with the U.S. Treasury Department to implement FATCA through intergovernmental agreements. Among these countries, France, Germany, Italy, Spain, Japan, Switzerland, Canada, Finland, Guernsey, Ireland, Isle of Man, Jersey, the Netherlands, and Norway have been nominated as jurisdictions in the process of finalizing agreements by the end of the year.

Jurisdictions with which the Treasury is actively engaged in a dialogue towards concluding an intergovernmental agreement include: Argentina, Australia, Belgium, the Cayman Islands, Cyprus, Estonia, Hungary, Israel, South Korea, Liechtenstein, Malaysia, Malta, New Zealand, the Slovak Republic, Singapore, and Sweden. The U.S. Treasury expects to be able to conclude negotiations with several of these jurisdictions by year end.


Romania is mentioned among the jurisdictions with which Treasury is working to explore options for intergovernmental engagement (which also include Bermuda, Brazil, the British Virgin Islands, Chile, the Czech Republic, Gibraltar, India, Lebanon, Luxembourg, Russia, the Seychelles, Saint Maarten, Slovenia, and South Africa). Taking this information into account, we expect the Romanian authorities to make a public statement on their option to sign a bilateral agreement, adopting a similar position to that of other E.U. member states.


The most recent developments include the Canadian Department of Finance announcing on 8 November that negotiations are being held with the United States on an IGA agreement, the Ministry of Finance of Singapore stating on 9 November that it has officially started discussions with the U.S. Treasury Department to sign an IGA agreement and Mexico, along with Denmark becoming the latest IGA signatories on 19 November. For the future, the United States will continue its outreach to interested jurisdictions that wish to consider an intergovernmental approach to implementing FATCA.


Ionuț Măstăcăneanu, Senior Manager, Taxation Services
Sebastian Ivanciu, Assistant, Taxation Services


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