First Friday FATCA Update

Post by
March 4, 2016

Recently, the Internal Revenue Service released the Model 1A Intergovernmental Agreement (IGA) entered into between the United States and Thailand.  The IRS also released the Competent Authority Agreement (CAA) between the United States and Colombia.  This CAA implements the Model 1A IGA the parties entered into on May 20, 2015.

In the past month, we have also addressed other recent FATCA developments:

  • The United States and Switzerland announced on March 1, 2016 that they have amended their CAA to exempt certain accounts maintained by lawyers and notaries (see previous coverage).
  • The IRS recently corrected Notice 2016-8 to reduce reporting burdens on foreign financial institutions (see previous coverage).
  • Two bankers associations filed a petition for certiorari seeking U.S. Supreme Court review of FATCA reporting requirements for foreign account holders (see previous coverage).

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.