On June 21, 2012, Treasury announced a new method for foreign financial institutions to comply with Foreign Account Tax Compliance Act ("FATCA") reporting. Under the new method, certain foreign financial institutions would be allowed to fulfill FATCA requirements by reporting directly to the Internal Revenue Service ("IRS"), with the foreign government supplementing the information upon request.
The new method for reporting represents an alternative to the country-to-country information sharing model that Treasury already was working on. Treasury issued joint statements with Japan and Switzerland that would allow the use of the new model to boost FATCA implementation and international tax compliance.
The joint statements contemplate agreements with Japan and Switzerland that would allow institutions to report directly as permitted under domestic laws. If consent is necessary but cannot be obtained from an account holder, the governments would be able to provide the information on the account holder pursuant to a treaty request.
As part of the agreement with Japan, the Japanese authorities would agree to direct and enable financial institutions in Japan, not otherwise exempt or deemed compliant, to execute an FFI Agreement with the IRS and confirm their intention to comply with the obligations under FATCA.
Additionally, the Japanese authorities would accept and promptly honor group requests made by the U.S. competent authority for additional information about U.S. accounts identified as recalcitrant and reported on an aggregate basis by Japanese financial institutions. The Japanese competent authority would obtain the requested information from the identified Japanese financial institution and promptly exchange the information with the U.S. competent authority.
Financial institutions in Japan that comply with their obligations under the agreement would not be required to terminate the account of a recalcitrant account holder; or impose passthru payment withholding on payments to recalcitrant account holders, and certain FFIs.
Similar to Japan's agreement, Switzerland would also direct Swiss financial institutions, not otherwise exempt or deemed compliant, to execute an FFI Agreement with the IRS.
This would require Switzerland to make a legal change that would require Swiss financial institutions that are not otherwise exempt or deemed compliant under current FATCA rules to participate and enter into the agreements with the IRS or register their participation with the IRS to identify U.S. accounts and report information to the IRS.
Switzerland would also accept and promptly honor a group request by the U.S. competent authority for additional information about U.S. accounts identified as recalcitrant and reported by Swiss financial institutions on an aggregate basis.
In addition, as a result of the agreement, Swiss financial institutions would not be required to terminate the account of a recalcitrant account holder; or impose foreign passthru payment withholding on payments to recalcitrant account holders, or to certain FFIs. Although both the Swiss and Japanese agreements provide for treaty exchange requests, it is expected that the majority of information would come from direct reporting from the institutions and only exceptional cases would require a treaty request.
Treasury is working on the first model agreement of government-to-government reporting, and hope to have the model completed and available for publication shortly.
Recently, the IRS published draft W-8 Forms for individuals and for entities to included information required for FATCA reporting.
Treasury has made it clear that FATCA is not going to be repealed. As a matter of fact, Treasury also announced that it hopes to issue final regulations by this fall.