First Friday FATCA Update

Since our last monthly FATCA update, we have addressed several other recent FATCA developments, including a flurry of FATCA-related regulations released by the IRS and Treasury Department:

  • Late Friday, December 30, 2016, the IRS and Treasury Department released four regulation packages related to its implementation of FATCA (see previous coverage).   These regulations largely finalized the 2014 temporary FATCA regulations and 2014 temporary FATCA coordination regulations with the changes that the IRS had previously announced in a series of notices.
  • The final regulations released by the IRS under FATCA on December 30, 2016, finalized the temporary presumption rules promulgated on March 6, 2014 with no substantive changes, but several changes were made to the final coordinating regulations under Chapter 3 and Chapter 61, also released on the same date (see previous coverage).
  • In the preamble to the final FATCA regulations released on December 30, 2016, the IRS rejected a request from a commenter that the regulations be modified to permit a non-financial foreign entity (NFFE) operating in an IGA jurisdiction to determine its Chapter 4 status using the criteria specified in the IGA (see previous coverage).
  • The IRS released final agreements for foreign financial institutions (FFIs) and qualified intermediaries (QIs) to enter into with the IRS, set forth in Revenue Procedure 2017-16 and Revenue Procedure 2017-15, respectively (see previous coverage).
  • Two FATCA transition rules expired on January 1, 2017:  One related to limited branches and limited FFIs, and one related to the deadline for sponsoring entities to register their sponsored entities with the IRS (see previous coverage).
  • The IRS issued Revenue Procedure 2016-56 to add to the list of countries subject to the reporting requirements of Code section 6049, which generally relate to reporting on bank interest paid to nonresident alien individuals (see previous coverage).
  • The IRS issued Notice 2016-76 providing phased-in application of certain section 871(m) withholding rules applicable to dividend equivalents, and easing several reporting and withholding requirements for withholding agents and qualified derivatives dealers (QDDs) (see previous coverage).

In addition, the Treasury Department recently released the Intergovernmental Agreements (IGA) entered into between the United States and the following treaty partners, in these respective forms:

  • Grenada, Model 1B;
  • Macau, Model 2;
  • Taiwan, Model 2.

Further, the IRS released the Competent Authority Agreement (CAA) implementing the Model 1A IGA between the United States and Guyana entered into on October 17, 2016.

Under FATCA, IGAs come in two forms: Model 1 or Model 2.  Under a Model 1 IGA, the foreign treaty partner agrees to collect information of U.S. accountholders in foreign financial institutions (FFIs) operating within its jurisdiction and transmit the information to the IRS.  Model 1 IGAs are drafted as either reciprocal (Model 1A) agreements or nonreciprocal (Model 1B) agreements.  By contrast, Model 2 IGAs are issued in only a nonreciprocal format and require FFIs to report information directly to the IRS.

A CAA is a bilateral agreement between the United States and the treaty partner to clarify or interpret treaty provisions.  A CAA implementing an IGA typically establishes and prescribes the rules and procedures necessary to implement certain provisions in the IGA and the Tax Information Exchange Agreement, if applicable.  Specific topics include registration of the treaty partner’s financial institutions, time and manner of exchange of information, remediation and enforcement, confidentiality and data safeguards, and cost allocation.  Generally, a CAA becomes operative on the later of (1) the date the IGA enters into force, or (2) the date the CAA is signed by the competent authorities of the United States and the treaty partner.

The Treasury Department website publishes IGAs, and the IRS publishes their implementing CAAs.