Treasury and IRS Expand Jurisdictions Subject to FATCA Agreements

The Treasury Department and the Internal Revenue Service said Wednesday they will treat 19 countries that have reached agreements in substance with the U.S. on the Foreign Account Tax Compliance Act as having those agreements in effect, until the end of 2014, and they will also delay the registration deadline for foreign banks for 10 more days.

FATCA, which was included as part of the HIRE Act of 2010, requires foreign financial institutions to report on the holdings of U.S. citizens to the IRS or else face stiff penalties. The law has provoked controversy in many countries, which have complained that it would violate their privacy and banking secrecy laws. To help ease implementation, the Treasury has been negotiating intergovernmental agreements with a host of different jurisdictions, but only 26 of them have been finalized ahead of one of the main deadlines, which is coming up in July (see Multiple FATCA Deadlines Approaching). The announcement on Wednesday means that the ones who have not yet reached the final stage will be treated as if they have.

The Treasury said the treatment would be available to jurisdictions that reach agreements in substance prior to July 1, 2014, and that consent to having the status of their agreements disclosed. As an increasing number of jurisdictions reach agreements in substance, the announcement provides foreign financial institutions located in these jurisdictions with the guidance they need prior to the upcoming registration deadlines.

In addition, as part of the effort to facilitate an effective start of FATCA withholding on July 1, 2014, the announcement will also provide FFIs with 10 more days to register and ensure that they will be included on the first IRS FFI list. The IRS said it can provide this extra time based on its assessment of the performance of its registration system to date.

To date, the United States has signed 26 IGAs. As of Wednesday, this announcement provides that 19 additional jurisdictions will be treated as having IGAs in effect, bringing the total number of jurisdictions that are treated as having IGAs in effect to 45. The new countries with agreements in substance include Australia, Belgium, Brazil, the British Virgin Islands, Liechtenstein, South Africa and South Korea.

The list is expected to continue to grow in the coming weeks as additional countries provide consent to having the status of their IGAs disclosed and additional agreements in substance are reached.

“With 45 countries now considered to have IGAs in effect, and more jurisdictions far along in the process, the robust international support behind FATCA is undeniable,” said Deputy Assistant Secretary for International Tax Affairs Robert B. Stack in a statement. “Today’s announcement both adds to our global effort against tax evasion and provides crucial clarity for financial institutions as they prepare to comply with FATCA starting on July 1.”

Congress enacted FATCA in 2010 to target non-compliance by U.S. taxpayers using foreign accounts, and the provision has since become the global standard for promoting tax transparency. It requires U.S. financial institutions to withhold a portion of certain payments made to FFIs that do not agree to identify and report information on U.S. account holders. Governments have two options for complying with FATCA: they can either permit their FFIs to enter into agreements with the IRS or they can themselves enter into IGAs with the United States. The final regulations generally provide that, in order for withholding not to apply, withholding agents must verify the status of FFIs beginning on July 1, 2014.

This announcement allows jurisdictions that have reached agreements in substance on IGAs before July 1, 2014, and have consented to be included on the list, to be treated as having IGAs in effect until Dec. 31, 2014, and allows FFIs to register on the FATCA registration website consistent with that treatment. After Dec. 31, 2014, only signed IGAs will be considered to be in effect. By treating jurisdictions that have reached agreements in substance on the terms of IGAs as jurisdictions that have IGAs in effect, the notice provides FFIs in those jurisdictions with certainty about their FATCA responsibilities this year.

Prior to the latest notice, FFIs were required to register by April 25, 2014 to ensure that they would be included on the first IRS FFI list. The Treasury said this is the only list that will be published before withholding begins. The announcement is intended to provide assurance that FFIs will be included on the list if they submit a complete registration form by May 5, 2014, instead of April 25 as originally announced.

For the IRS announcement, click here. For the list of jurisdictions that are treated as having an IGA in effect, click here.

Announcement 2014-17 provides guidance to foreign financial institutions in jurisdictions that have not signed an intergovernmental FATCA agreement, but that have reached an agreement in substance with the United States on the terms of an IGA. Announcement 2014-17 also provides that the global intermediary identification number, or GIIN, of a registering FFI will be included on the June 2 IRS FFI List if the FFI’s registration is finalized by May 5, 2014, rather than April 25, 2014, as originally announced. In addition, Announcement 2014-17 provides that the GIIN of a registering FFI will be included on the July 1 FFI List if the FFI’s registration is finalized by June 3, 2014.

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