Treasury to Remove Jurisdictions from List of Countries Treated as Having IGAs in Effect

August 1, 2016 by  
Filed under FATCA, IRS

Last week, the IRS announced that on January 1, 2017, the U.S. Treasury will remove some jurisdictions from the list of foreign jurisdictions that are treated as having intergovernmental agreements (IGAs) in effect.  To remain on the list after December 31, 2016, each jurisdiction that seeks to continue to be treated as having an IGA in effect must provide to the Treasury a detailed explanation of its failure to bring an IGA into force and a step-by-step plan and timeline for signing the IGA, or if the IGA has already been signed, to bring the IGA into force.  Since 2013, the Treasury has provided a list of jurisdictions that are as having an IGA in force as long as the jurisdiction is taking “reasonable steps” or showing “firm resolve” to sign the IGA (if no IGA has been signed) or to bring the IGA into force.

As of today, the United States has signed IGAs with 83 jurisdictions and 61 of those IGAs are in effect.  Another 30 jurisdictions are considered to have an agreement in substance, but have not yet signed an IGA.  The jurisdictions who are treated as having an IGA in effect that have not yet signed an agreement or who have signed an agreement but not yet brought it into effect are: Anguilla, Antigua and Barbuda, Armenia, Bahrain, Belgium, Cabo Verde, Cambodia, Chile, Costa Rica, Croatia, Curaçao, Dominica, Dominican Republic, Georgia, Greece, Greenland, Grenada, Guyana, Haiti, Hong Kong, Indonesia, Iraq, Israel, Kazakhstan, Macao, Malaysia, Montenegro, Montserrat, Nicaragua, Paraguay, Peru, Philippines, Portugal, San Marino, Saudi Arabia, Serbia, Seychelles, South Korea, St. Lucia, Taiwan, Thailand, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Ukraine, United Arab Emirates, and Uzbekistan.

Under FATCA, an IGA is a bilateral agreement between the United States and a foreign jurisdiction to collect information related to U.S. accountholders at foreign financial institutions (FFIs) in the foreign jurisdiction and transmit the information to the IRS.  If a foreign jurisdiction lacks an IGA in force, then FFIs in that jurisdiction face greater FATCA compliance burdens.  First, they must register with the IRS as participating FFIs (rather than registered deemed compliant FFIs) to avoid the mandatory 30% withholding on payments of U.S. source FDAP income that they receive.  This subjects them to the full requirements of the Treasury Regulations governing FATCA rather than the streamlined procedures in the IGAs.  Further, they are often subject to conflicting obligations, because the foreign jurisdiction may have privacy or bank laws that conflict with the disclosure requirements of FATCA.

In the announcement, the IRS stressed that a jurisdiction initially determined to have shown firm resolve to bring an IGA into force will not retain that status indefinitely (e.g., if the jurisdiction fails to follow its proposed plan and timeline for bringing an IGA into force).  If the IRS determines that a jurisdiction ceases to be treated as having an IGA effect, an FFI in the jurisdiction generally will have to enter into a FFI Agreement to comply with the FFI’s FATCA reporting obligations within 60 days.