As we reported on in previous editions in early 2012 the US Treasury and the Inland Revenue Service (IRS) issued a joint statement together with France, Germany, Italy, Spain and the UK setting out a framework for the establishment of intergovernmental agreements to better facilitate the implementation of FATCA.
Essentially these agreements would establish a framework under which entities resident in the relevant countries would be required to report certain information to their home country taxing authorities who would then share this information with the IRS under the exchange of information provisions in the relevant double taxation treaties. This would replace the position under which the US was going to require such entities to register for and directly comply with US legislation.
On 26 July 2012 the US Treasury, following on from that initial joint statement, released two versions of the Model I Intergovernmental Agreement (Model IGA) - one dealing with reciprocal information exchange where the FATCA partner country has an existing tax treaty or tax information exchange agreement with the US and one dealing with information exchange on a non-reciprocal basis where no such agreements exist. Under the Model IGA foreign financial institutions (FFIs) in a FATCA Partner country will be able to comply with FATCA by collecting and reporting the information required to their home tax authorities rather than the IRS. Those FFIs will be “deemed FATCA compliant” and should not be subject to the 30% FATCA withholding on payments made to them.
On 12 September 2012 the UK became the first country to sign an IGA with the US to implement FATCA. This is significant in an Irish context as it increases the likelihood that Ireland will follow suit sooner rather than later. The text of the agreement closely replicates the Model IGA published in July with the addition at Annex II of a country specific list of financial institutions and financial products to be treated as exempt or deemed compliant for FATCA purposes. Among those non-reporting UK financial institutions listed at Annex II are certain UK Governmental organisations, the Central Bank, the UK offices of certain international organisations (e.g. of the IMF, World Bank and the EC), retirement funds, non-profit organisations (e.g. registered charities), credit unions, industrial and provident societies, friendly societies, investment trust companies, etc.
Ireland has a comprehensive tax treaty with the US containing information exchange provisions. As such it is anticipated that Ireland will seek to 'come on board' with the reciprocal Model IGA. As early as April the Irish tax authorities announced they had commenced discussions with the US Treasury over a model agreement for implementing FATCA. It is now even more likely, in light of the published UK IGA, that Ireland will seek to conclude a similar agreement with the US. While there is no official timetable for those discussions it has been reported in various quarters that the Irish tax authorities are currently discussing with a number of representative organisations (e.g. the IFIA and Banking and Treasury Group) the categories of financial institutions and products that should be exempt or deemed FATCA compliant under an IGA with Ireland and with a view to concluding an agreement with the US before year end. It is likely that the UK list will inform Ireland's approach when negotiating Annex II to its proposed IGA with the US.
Once agreed it is anticipated that Irish domestic tax legislation will be amended later in the year to facilitate implementation of FATCA thereby enabling Irish funds and similar financial entities to collect and report the relevant information to the Irish tax authorities rather than direct to the IRS. The Irish tax authorities will then share this information with the IRS through the existing double taxation treaty arrangements. As indicated by the IFIA back in April a simplified standardised approach to FATCA, such as the IGA, should be very positive for the Irish funds industry.