First Friday FATCA Update

Post by
October 6, 2017

Since our last monthly FATCA update, the IRS has issued Notice 2017-46, providing welcomed reprieve for U.S. financial institutions with respect to the collection of foreign taxpayer identification numbers (FTINs) required of them by FATCA to avoid Chapter 3 withholding.  The notice delays the date on which U.S. financial institutions must begin collecting FTINs to January 1, 2018, provides a phase-in period for obtaining FTINs from account holders documented before January 1, 2018, that will end on December 31, 2019, and limits the circumstances in which FTINs are required (see prior coverage).  This week, an IRS official reiterated that a change in an accountholder’s address to another jurisdiction is a change in circumstances that will invalidate the Form W-8 for payments made after the change provided an FTIN is otherwise required, necessitating the collection of an FTIN if an FTIN is otherwise required with respect to the payment(s).

Additionally, the Treasury Department has also released the Model 1A intergovernmental agreement (IGA) between the United States and Kazakhstan.

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 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 competent authority agreement (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.