Friday, July 27, 2012

Treasury Releases Model Intergovernmental Agreement for Implementing the FATCA

WASHINGTON – The U.S. Department of the Treasury today published a model intergovernmental agreement (model agreement) to implement the information reporting and withholding tax provisions commonly known as the Foreign Account Tax Compliance Act (FATCA). Enacted by Congress in 2010, these provisions target non-compliance by U.S. taxpayers using foreign accounts

The agreement was developed in consultation with France, Germany, Italy, Spain and the United Kingdom and is based on a framework announced by those five countries and the United States in February.

Treasury said the agreement would be a basis for close cooperation between the United States, these five countries, the Organization for Economic Cooperation and Development, the European Union, and other partner governments.

The model agreement follows through on the commitment reflected in the joint statement issued with the same countries in February to collaborate on developing an intergovernmental approach to implementing FATCA. The model agreement is accompanied by another joint communique with France, Germany, Italy, Spain, and the United Kingdom, endorsing the agreement and calling for a speedy conclusion of bilateral agreements based on the model.

There are two versions of the model agreement - a reciprocal version and a nonreciprocal version. Both versions establish a framework for reporting by financial institutions of certain financial account information to their respective tax authorities, followed by automatic exchange of such information under existing bilateral tax treaties or tax information exchange agreements. Both versions of the model agreement also address the legal issues that had been raised in connection with FATCA, and simplify its implementation for financial institutions.

If you have any FATCA problems or questions, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at or or Toll Free at 888-8TaxAid (888 882-9243).


  1. The Treasury developed the Model Agreement in conjunction with the governments of France, Germany, Italy, Spain and the United Kingdom to resolve certain legal concerns that have been raised in connection with the FATCA compliance now required of certain non-US financial institutions and other non-US entities, including certain investment funds.

    A covered entity located in one of the above-listed jurisdictions (or in any other jurisdiction that may enter into a Model Agreement) that would otherwise be required by FATCA to report information to the US Internal Revenue Service (IRS) will, instead, once its own government signs the Model Agreement, comply by reporting to its government.

    Under the Model Agreement, covered FFIs will be treated as FATCA-compliant and will not be subject to the FATCA withholding tax if the FFI meets the following requirements:

    1. The FFI must identify and report to its government certain information about its US accounts. The due diligence requirements under the Model Agreement for identifying account holders are similar in many respects to those under FATCA. Both, for instance, distinguish between preexisting and existing accounts, and individual and entity accounts. The government of the partner country generally must provide the information to the US within nine months after the end of the calendar year to which the information relates, e.g., for information relating to 2013, the deadline is extended to September 30, 2015.

    2. The FFI must report to its government the name of, and aggregate amount of payments made in 2015 and 2016 to each account holder that is a nonparticipating FFI. As noted above, the due diligence requirements under the Model Agreement for identifying account holders are similar to those under FATCA.

    3. To the extent that the FFI acts as a qualified intermediary with primary withholding responsibility, a withholding foreign partnership, or a withholding foreign trust, the FFI must withhold 30 percent of any US-sourced withholdable payment made to an account holder that is a nonparticipating FFI. All other FFIs that make a payment of, or act as an intermediary with respect to, a US-sourced withholdable payment to an account holder that is a nonparticipating FFI must provide to any immediate payer of such payment the information required for withholding and reporting to occur with respect to such payment.

    4. The FFI must comply with certain registration requirements.

    5. If the FFI reports the required information, it will not be required to withhold on payments made to accounts held by recalcitrant account holders or to close such accounts.

    The Treasury has released two versions of the Model Agreement—a reciprocal version and a nonreciprocal version. Both versions require a partner country to provide the US with information about US accounts held by FFIs.
    The reciprocal version goes a step further by containing a policy commitment to pursue regulations and legislation that would require it to provide partner countries with equivalent information about accounts held in US financial institutions by residents of partner countries.
    For the purposes of determining if a country is qualified to enter into a reciprocal Model Agreement, the Treasury has indicated that it will assess whether the country has sufficient protection in place to ensure that the information is kept confidential and used only for tax purposes.

  2. Drafts of FATCA Model Intergovernmental Agreements Released

    The US, UK, France, Germany, Italy, and Spain have jointly issued drafts of two versions of model agreements implementing FATCA through a process of intergovernmental information exchange (the “Model Agreements”). Although these drafts clarify the broad strokes of these agreements and contain a number of provisions that are likely to be favourably received, they also raise a number of questions and concerns.
    Summary of Key Provisions
    Under one version of the Model Agreements, certain “FATCA Partner” countries will implement legislation requiring financial institutions (“FFIs”) located in those jurisdictions to collect and report information regarding their accountholders to the relevant local tax authorities, which will compile and forward this information to the US. In exchange, the IRS would collect information regarding accounts held with financial institutions in the US by tax residents of the relevant FATCA Partner, and report this to the tax authorities of that partner country.
    Due to US laws restricting the distribution of such information, however, it is anticipated that the reciprocal agreement will only be available to countries that have a treaty and tax information exchange agreement with the US and otherwise have “robust” protections limiting the use of the information exchanged under local law.
    Under another, non-reciprocal, version of the Model Agreements, FFIs located in the relevant FATCA Partner jurisdiction would collect and report information regarding their accountholders, which would be forwarded to the IRS, but the tax authorities of that jurisdiction would not receive any corresponding information from the US regarding accounts its tax residents maintain with US financial institutions.
    FFIs in jurisdictions with which the US has signed either a reciprocal or non-reciprocal agreement would not be subject to the new US withholding tax under FATCA. In addition, they will not be required to separately enter into agreements with the IRS under which they would become participating FFIs and agree to identify their US accountholders to the IRS, thereby addressing concerns regarding data protection and bank secrecy laws that would potentially prevent FFIs in those jurisdictions from releasing such information to the IRS.

  3. Expanded Phase-In of Implementation Timeframe

    The Model Agreements broadly mirror the implementation timeline introduced in the proposed regulations, but relax certain requirements and would not require institutions in jurisdictions covered by these agreements to report information regarding accounts maintained in the 2013 calendar year until September 30, 2015. In addition, procedures to collect certain information such as the US or FATCA Partner TIN of accountholders will not be required until January of 2017.

    The Model Agreements also extend the date by which an account may be opened and still qualify as a “preexisting” account until December 31, 2013.

    Expanded Categories of Excepted and Deemed Compliant Entities

    The Model Agreements clarify that certain specified retirement plans, charitable organizations, and other entities will be treated as deemed-compliant and excluded from the application of this intergovernmental information sharing regime and will not be subject to the FATCA withholding taxes that would otherwise apply.

    Further details as to the specific types of entities and arrangements that will be treated as deemed compliant are expected to be forthcoming in a schedule that will be attached to the final agreement with each FATCA Partner country. This should provide welcome clarification and certainty as to the status of a number of specific categories of institutions in each partner jurisdiction.

  4. Relaxed Due-Diligence Requirements

    If an FFI’s database includes sufficient records to perform a search for the required indicia of the US status of accountholders, the Model Agreements would no longer require the FFI to review paper records when implementing the enhanced review procedures applicable to accounts with a balance over US$1 million; however, inquiry of relationship managers as to the actual knowledge of any US indicia will still be required.


    The Model Agreements raise issues and concerns for trusts that have a connection to the US, as they deviate from the approach initially adopted in the proposed FATCA regulations by introducing a new concept of “controlling persons” (defined to mean natural persons who exercise control over an entity), into the test for determining whether an account should be categorized as having US owners.

    The Model Agreements specify that, in the case of a trust, the category of controlling persons includes settlors, trustees, protectors, and beneficiaries or classes of beneficiary (to be interpreted consistently with FATF recommendations).

    Although the Model Agreements allow FFIs to instead rely on the proposed regulations when identifying their US accountholders, many may choose to apply the “controlling person” test. This might well result in more trusts being categorized as having US owners than would have been the case under the procedures outlined in the proposed FATCA regulations.

    A Two-Way Street?

    Finally, the success of these Model Agreements ultimately still depends on whether FATCA Partner countries will be willing to enter into such accords, which in the case of certain partner jurisdictions hinge on whether there will be a reciprocal sharing of information with these countries. It has been noted, for example, that there may be opposition in Germany to entering into such an agreement with the US unless there is reciprocity.

    The situation is further complicated by legislation currently pending in the US Congress that would, if enacted, likely hinder efforts by the IRS and Treasury to effectively implement the reporting by US financial institutions necessary to provide such reciprocal information to other governments.

    Although it remains uncertain whether this legislation will pass, it is clear that much work remains to be done in the US before any such reciprocal agreements could be effectively implemented.

  5. For more on Drafts of FATCA Model Intergovernmental Agreements Released go to