First Friday FATCA Update

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April 1, 2016

Recently, the Internal Revenue Service released the Competent Authority Agreement (CAA) between the United States and Turkey.  This CAA implements the Model 1A Intergovernmental Agreement (IGA) the parties entered into on July 29, 2015.

Since our last monthly FATCA update, we have also addressed other recent FATCA developments:

  • The Canadian government expressed support for FATCA despite concerns about how FATCA impacts Canadian citizens’ privacy rights (see previous coverage).
  • New Zealand released guidance explaining how FATCA applies to New Zealand trusts that maintain or hold financial accounts (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.