First Friday FATCA Update

Since our last monthly FATCA update, no new intergovernmental agreements (IGA) or competent authority agreements (CAA) have been released.  The Treasury Department website publishes IGAs, and the IRS publishes their implementing CAAs.

On October 24, 2017, the United States and Singapore released a joint statement following the meeting between President Donald Trump and Prime Minister Lee Hsien Loong the previous day.  The statement indicated that the two countries have substantially completed negotiations on a Tax Information Exchange Agreement and a reciprocal Model 1A IGA.  The countries plan to sign the agreements before the end of the year.

Five New CAAs on Exchange of CbC Reports Pushes Total to 27

The IRS has concluded competent authority arrangements (“CAAs”) for the exchange of country-by-country (“CbC”) reports with the Czech Republic, Finland, Greece, Italy, and Sweden.  The new arrangements bring the number of CAAs for the exchange of CbC reports to 27.  The CAAs for the exchange of CbC reports generally require the competent authorities of the foreign country and the United States to exchange annually, on an automatic basis, CbC reports received from each reporting entity that is a tax resident in its jurisdiction, provided that one or more constituent entities of the reporting entity’s group is a tax resident in the other jurisdiction, or is subject to tax with respect to the business carried out through a permanent establishment in the other jurisdiction.

In the United States, CbC reporting is required for U.S. persons that are the ultimate parent entity of a multinational enterprise (“MNE”) with revenue of $850 million or more in the preceding accounting year, for reporting years beginning on or after June 30, 2016, under the IRS’s final regulations issued last summer (see prior coverage).  Reporting entities must file a new Form 8975 (“Country by Country Report”) and Schedule A to Form 8975 (“Tax Jurisdiction and Constituent Entity Information”).  In Revenue Procedure 2017-23, the IRS announced that U.S. MNEs may voluntarily file Form 8975 with the IRS for taxable years beginning on or after January 1, 2016, and before June 30, 2016.  U.S. MNEs that do not voluntarily file with the IRS may be subject to CbC reporting in foreign jurisdictions in which they have constituent entities.

As we have previously reported, a CAA generally must be in force with a foreign jurisdiction for CbC reports filed with the IRS by a U.S. MNE to satisfy the CbC reporting requirements under foreign law.  Although the new agreements are welcome, the pace at which the IRS has concluded CAA negotiations with foreign jurisdictions continues to raise concerns that U.S. MNEs may be subject to foreign filing requirements, as many foreign jurisdictions that have adopted CbC reporting requirements under the OECD’s Base Erosion and Profit Shifting Action 13 have done so with respect to reporting years beginning on or after January 1, 2016.  The United States’ decision to pursue bilateral CAAs with each foreign jurisdiction rather than sign a multilateral CAA has made the implementation process longer than that in other jurisdictions.  The U.S. CAAs are substantially similar to the multilateral CAA, but numerous foreign jurisdictions have not yet signed a bilateral CAA with the IRS, including China, France, Germany, Mexico, and Japan, although a number of these jurisdictions are in negotiations with the United States.

The IRS maintains a status table of foreign jurisdictions on its CbC Reporting web site.  The table identifies foreign countries with which the U.S. is in negotiations for a CAA and that have satisfied the United States’ data safeguards and infrastructure review.  Although the foreign jurisdictions listed have consented to being listed, the web site warns that taxpayers cannot rely on the table for assurances that the CAAs will be adopted by the end of 2017.  Although U.S. voluntary reporting for early reporting periods began on September 1, U.S. MNEs should monitor continuing developments to determine whether delays in the U.S. CAA process may necessitate the filing of CbC reports in foreign jurisdictions in addition to the United States.

First Friday FATCA Update

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.

First Friday FATCA Update

Since our previous monthly FATCA update, we have addressed the following recent FATCA developments:

  • The Sixth Circuit issued an opinion on August 18, 2017 upholding the dismissal of a challenge to FATCA brought by Senator Rand Paul and several current and former U.S. citizens living abroad who hold foreign accounts (see prior coverage).
  • The IRS posted draft instructions to the Form 8966 (FATCA Report) dated August 9, 2017, with some changes pertaining to participating foreign financial institutions (PFFIs) and other changes reflecting the final and temporary Chapter 4 regulations released in January of this year (see prior coverage).

Additionally, an official with the IRS Office of Chief Counsel recently stated that the IRS will delay the date on which U.S. financial institutions must start treating an otherwise valid Form W‑8 as invalid merely because it does not include a foreign taxpayer identification number (FTIN) or a reasonable explanation for its absence, to avoid Chapter 3 withholding.  Specifically, a valid Form W-8 obtained before January 1, 2018, will not be treated as invalid on that date if the form simply lacks the FTIN or a reasonable explanation for its absence (e.g., the account holder’s country of residence does not provide TINs).  It is unclear what form the relief will take, but it is possible the IRS will continue to allow a U.S. financial institution to treat a Form W-8 as valid if the financial institution does not have actual knowledge that the beneficial owner has an FTIN for some period of time.

This informal relief from the new FTIN requirement (issued in final and temporary regulations in late 2016) is welcomed by banks and withholding agents that report income for foreign account holders.  The relief is still reflected in FAQs on the IRS website (see prior coverage).  But since Form W-8s expire on three-year cycles, banks and agents still have to update their withholding policies and annual re-solicitation processes to comply with the new FTIN requirements.  Additionally, banks and agents are still waiting for further guidance on how they can update Form W‑8s issued before 2018 with the newly‑required FTIN or reasonable explanation.  An IRS FAQ posted in April 2017 specifies that the information can be provided in a written statement, including an email, but it is unclear what other requirements might apply to such a statement.

Since our previous monthly FATCA update, the IRS has also released the Competent Authority Agreements (CAAs) implementing intergovernmental agreements (IGAs) between the United States and the following treaty partners:

  • Anguilla (Model 1B IGA signed on January 15, 2017);
  • Italy (Model 1A IGA signed on January 10, 2014).

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 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.

New CAAs on Exchange of CbC Reports Pushes Total to 20

The IRS has concluded competent authority arrangements (“CAAs”) for the exchange of country-by-country (“CbC”) reports with Australia and the United Kingdom.  The CAA with Australia was signed in Australia on July 14 and by the United States on August 1.  The CAA with the United Kingdom was signed on August 16.  The new arrangements bring the number of CAAs for the exchange of CbC reports to 20. The CAAs for the exchange of CbC reports generally require the competent authorities of the foreign country and the United States to exchange annually, on an automatic basis, CbC reports received from each reporting entity that is a tax resident in its jurisdiction, provided that one or more constituent entities of the reporting entity’s group is a tax resident in the other jurisdiction, or is subject to tax with respect to the business carried out through a permanent establishment in the other jurisdiction.

In the United States, CbC reporting is required for U.S. persons that are the ultimate parent entity of a multinational enterprise (“MNE”) with revenue of $850 million or more in the preceding accounting year, for reporting years beginning on or after June 30, 2016, under the IRS’s final regulations issued last summer (see prior coverage).  Reporting entities must file a new Form 8975 (“Country by Country Report”) and Schedule A to Form 8975 (“Tax Jurisdiction and Constituent Entity Information”).  In Revenue Procedure 2017-23, the IRS announced that U.S. MNEs may voluntarily file Form 8975 with the IRS for taxable years beginning on or after January 1, 2016, and before June 30, 2016.  U.S. MNEs that do not voluntarily file with the IRS may be subject to CbC reporting in foreign jurisdictions in which they have constituent entities.

A CAA generally must be in force with a foreign jurisdiction for CbC reports filed with the IRS by a U.S. MNE to satisfy the CbC reporting requirements under foreign law.  This has raised concerns about the pace at which the IRS has concluded CAA negotiations with foreign jurisdictions.  Many foreign jurisdictions that have adopted CbC reporting requirements under the OECD’s Base Erosion and Profit Shifting Action 13 have done so with respect to reporting years beginning on or after January 1, 2016.  Most of those countries have signed a multilateral CAA, but the United States has chosen instead to pursue bilateral CAAs with each foreign jurisdiction—likely due to U.S. concerns regarding the use of the information contained in the CbC reports and potential public disclosure of the information.  The U.S. CAAs are substantially similar to the multilateral CAA, but numerous foreign jurisdictions have not yet signed a bilateral CAA with the IRS, including China, France, Germany, Mexico, and Japan.

The IRS maintains a status table of foreign jurisdictions on its CbC Reporting page.  With voluntary reporting for early reporting periods set to begin on September 1, U.S. MNEs should monitor continuing developments to determine whether delays in the U.S. CAA process may necessitate the filing of CbC reports in foreign jurisdictions.

First Friday FATCA Update

August 4, 2017 by  
Filed under FATCA, Information Reporting, IRS

Since our last monthly FATCA update, the IRS has updated its FATCA frequently asked questions to include four new FAQs addressing the renewal of foreign financial institution (FFI) agreements and extending the deadline for renewing FFI agreements to October 24, 2017 (discussed here and here).

Recently, the Treasury released the Model 1B Intergovermental Agreement (IGA) between the United States and Turkmenistan.

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.

First Friday FATCA Update

Since our last monthly FATCA update, the IRS has updated its online FATCA portal to allow foreign financial institutions to renew their FFI agreements (see prior coverage).

Recently, the Treasury released the Model 1B Intergovernmental Agreement (IGA) between the United States and Montenegro.  The IRS also released the Competent Authority Agreements (CAAs) implementing IGAs between the United States and the following treaty partners:

  • Bahrain (Model 1B IGA signed on January 18, 2017);
  • Croatia (Model 1A IGA signed on March 20, 2015);
  • Greenland (Model 1A IGA signed on January 17, 2017); and
  • Panama (Model 1A IGA signed on April 27, 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 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.

IRS Releases Five CbC Reporting Agreements

The IRS has released the first set of competent authority arrangements (CAAs) for the automatic exchange of country-by-country (CbC) reports, with Iceland, Norway, the Netherlands, New Zealand, and South Africa.  These CAAs are implemented under Action 13 of the Organization for Economic Co-Operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) project, requiring jurisdictions to exchange standardized CbC reports beginning in 2018.  Specifically, under the OECD’s Guidance (see prior coverage regarding recent updates), multinational enterprise (MNE) groups with $750 million Euros or a near equivalent amount in domestic currency must report revenue, profit or loss, capital and accumulated earnings, and number of employees for each country in which they operate.  These CbC reports will assist each jurisdiction’s tax authorities to identify the bases of economic activity for each of these companies, in order to combat tax base erosion and profit shifting.

The CAAs are substantially similar, and each requires the competent authorities of the foreign country and the United States to exchange annually, on an automatic basis, CbC reports received from each reporting entity that is a tax resident in its jurisdiction, provided that one or more constituent entities of the reporting entity’s group is a tax resident in the other jurisdiction, or is subject to tax with respect to the business carried out through a permanent establishment in the other jurisdiction.  Each competent authority is to notify the other competent authority when it has reason to believe that CbC reporting is incorrect or incomplete or the reporting entity did not comply with its CbC reporting obligations under domestic law.

The CAAs provide an aggressive implementation schedule.  Generally, a CbC report is intended to be first exchanged with respect to fiscal years of MNEs commencing on or after January 1, 2016 (or January 1, 2017 in the case of Iceland).  This CbC report is intended to be exchanged as soon as possible and no later than 18 months after the last day of the MNE’s fiscal year to which the report relates.  For fiscal years of MNEs commencing on or after January 1, 2017 (or January 1, 2018 in the case of Iceland), the CbC reports are intended to be exchanged as soon as possible and no later than 15 months after the last day of the fiscal year.

In the United States, CbC reporting is required for U.S. persons that are the ultimate parent entity of a MNE with revenue of $850 million or more in the preceding accounting year, for taxable years beginning on or after June 30, 2016, under the IRS’s final regulations issued last summer (see prior coverage).  Reporting entities must file a new Form 8975, the “Country by Country Report,” which the IRS is currently developing.

We will provide updates upon the release of additional CAAs, the Form 8975, and OECD guidance on CbC reporting.

First Friday FATCA Update

Since our last FATCA Update, the IRS has published a reminder that foreign financial institutions (FFIs) required by FATCA to renew their FFI agreements must do so by July 31, 2017.  The IRS released an updated FFI agreement on December 30, 2016, that is effective on or after January 1, 2017 (see prior coverage).  All financial institutions (FIs) whose prior FFI agreement expired on December 31, 2016, and that wish to retain their Global Intermediary Identification Number (GIIN) must do so by July 31, 2017 to be treated as having in effect an FFI agreement as of January 1, 2017.  According to the IRS, a new “Renew FFI Agreement” link will become available on the FFI’s account homepage in a future update to the FATCA registration portal.

Generally, FATCA requires the following types of FIs to renew their FFI agreements: participating FFIs not covered by an intergovernmental agreement (IGA); reporting Model 2 FFIs; reporting Model 1 FFIs operating branches outside of Model 1 jurisdictions.  By contrast, renewal is not required for reporting Model 1 FFIs that are not operating branches outside of Model 1 jurisdictions; registered deemed-compliant FFIs (regardless of location); sponsoring entities; direct reporting non-financial foreign entities (NFFEs); and trustees of trustee-documented trust.

Since our last update, Treasury has not published any new intergovernmental agreements (IGAs), and the IRS has not published any new competent authority agreements (CAAs).  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.

First Friday FATCA Update

August 5, 2016 by  
Filed under FATCA

Recently, the IRS released the Competent Authority Agreements (CAAs) implementing the Intergovernmental Agreements (IGAs) between the United States and the following treaty partners:

  • Georgia (Model 1B IGA signed on July 10, 2015);
  • British Virgin Islands (Model 1B IGA signed on June 30, 2014).

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

  • The IRS announced that on January 1, 2017, Treasury will update the IGA list to provide that certain jurisdictions that have not brought their IGA into force will no longer be treated as if they have an IGA in effect (see previous coverage).
  • The United States and Singapore issued a joint statement announcing that they are negotiating a Tax Information Exchange Agreement and Reciprocal Model 1A IGA to replace the nonreciprocal Model 1B IGA currently in effect (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.

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