U.S. Treasury Department publishes model intergovernmental agreements permitting Foreign Financial Institutions to report information about U.S. account holders to their home jurisdictions instead of the Internal Revenue Service

Summary

On July 26, 2012, the U.S. Department of the Treasury published two FATCA model intergovernmental agreements (the “model agreements”) that provide for alternative means of complying with FATCA. These agreements were developed in consultation with France, Germany, Italy, Spain and the United Kingdom. The Treasury Department also released a joint communiqué with these same countries, endorsing the model agreements and announcing the parties’ expectation that bilateral agreements based on the model will shortly be concluded.

Both model agreements establish a framework for bilateral agreements with other countries (each a “FATCA Partner”) under which foreign financial institutions operating in a signatory country may report the required FATCA information to the relevant tax authority of the FATCA Partner instead of reporting required information to the U.S. Internal Revenue Service. The FATCA Partner tax authority would then transmit this information to the IRS under the tax treaty or tax information exchange agreement between the FATCA Partner and the United States.

The difference between the two model agreements is that one agreement (the “reciprocal agreement”) provides for the United States to send certain information on U.S. accounts held by residents of the FATCA Partner to the FATCA Partner, while the other (the “nonreciprocal agreement”) does not. Eligibility for home country reporting is based on the location of a financial institution’s relevant branch, rather than where the financial institution is incorporated or otherwise a tax resident. In other words, a French branch of a UK tax resident bank would report to the French tax authority under an agreement with France rather than to HMRC under a UK agreement.

Both model agreements provide benefits to financial institutions that operate in FATCA Partner jurisdictions (and report, as contemplated by the agreement, to their local revenue authority) that are consistent with the benefits identified in the joint statement released with the same five countries in February. These concessions include (i) being treated as compliant with FATCA and (ii) a suspension of the rules relating to “recalcitrant account holders.”

Background

FATCA was enacted in March 2010, as a section of the “Hiring Incentives to Restore Employment Act.” The Code provisions that comprise FATCA were colloquially so-named because they were originally introduced as the “Foreign Account Tax Compliance Act.” FATCA is intended to prevent U.S. citizens and residents from evading their U.S. tax obligations by holding assets offshore. To accomplish this objective, FATCA encourages: (i) so-called “foreign financial institutions” (“FFIs”) to sign agreements to report information on their U.S. account holders to the IRS (such FFIs, “Participating FFIs”) and (ii) other foreign entities to provide information regarding their beneficial owners to U.S. withholding agents, including Participating FFIs. If entities do not comply, FATCA requires withholding agents to collect a 30% withholding tax on payments of U.S.-source “withholdable payments” made to these entities. FATCA also requires these Participating FFIs to withhold on certain “passthru payments” made to “recalcitrant account holders” and to FFIs that do not sign an FFI agreement with the IRS (such FFIs, “nonparticipating FFIs”).

On February 8, 2012, the IRS and Treasury Department issued proposed regulations under FATCA (the “Proposed Regulations”) which provide significant detail regarding how the IRS and Treasury Department expect to implement FATCA and coordinate FATCA with other U.S. withholding and information reporting requirements.1 The Proposed Regulations include provisions under which FFIs could become “deemed complaint” with FATCA by way of a bilateral agreement between the United States and the FFI’s home country pursuant to which the FFI provides information to its home government in lieu of providing it to the IRS.

In conjunction with the issuance of the Proposed Regulations, the Treasury Department released a joint statement with the governments of France, Germany, Italy, Spain and the United Kingdom (the “Joint Statement”) outlining these countries’ intention to “intensify their co-operation in combating international tax evasion” and to explore common approaches to implementing FATCA. The Joint Statement also outlined a possible framework for FATCA implementation based on reciprocal reporting between the United States and a country with which the United States signs an agreement.2

According to a Treasury Department press release, the model agreement “follows through on the commitment reflected in the joint statement issued with [these] countries in February to collaborate on developing an intergovernmental approach to implementing FATCA.” The press release also states that the Treasury Department and IRS will continue to “work with other governments and with businesses to implement FATCA and to achieve maximum consistency and standardization in the technical implementation of the agreed information exchange, including by providing more detailed guidance as necessary.”

OUTLINE OF THE MODEL AGREEMENTS

The basic framework of the model agreements is consistent with the Joint Statement. FFIs in a FATCA Partner jurisdiction will be able to comply with FATCA by reporting to their home government rather than the IRS, as would otherwise be required under FATCA. The United States and the FATCA Partner will exchange information regarding accounts held in one country by residents of the other country (or in the case of the nonreciprocal agreement, the FATCA Partner will be the only party sharing information). This information sharing is intended to take place pursuant to currently existing tax treaties or tax information exchange agreements between the United States and the FATCA Partner.

Each of the model agreements details the obligations of the FATCA Partner to obtain and exchange information with respect to accounts held by FFIs in the FATCA Partner by “specified U.S. persons”3 or non-U.S. entities that have one or more “controlling persons” (discussed in additional detail below) that is a specified U.S. person. It is noteworthy that (i) the model agreements determine eligibility for home country reporting based on the location of the relevant branch rather than where the financial institution is incorporated or otherwise tax resident, and (ii) the model agreements do not require the relevant FFI to sign an agreement with the IRS to avoid the imposition of FATCA withholding tax on withholdable payments to the branch. Therefore, it is possible that one branch of an FFI (that is located in a FATCA Partner) could be treated as compliant with FATCA, while another branch of the same legal entity could be treated as a nonparticipating FFI (and subject to FATCA withholding on payments it receives).

The model agreements (i) specify the time and manner of exchanging information and provide for collaboration between the countries on compliance and enforcement, (ii) describe the treatment the United States will give to FFIs in the FATCA Partner and (iii) include a mutual commitment to continue to enhance the effectiveness of information exchange and transparency. The reciprocal agreement also includes an obligation of the United States to report to the FATCA Partner information regarding certain accounts in U.S. financial institutions that are held by residents of the FATCA Partner.

There are two Annexes to the model agreement. Annex I describes the due diligence obligations for identifying and reporting on U.S. accounts, and for making payments to nonparticipating FFIs. Annex II will provide a list of FATCA Partner FFIs and products that are exempt from FATCA reporting obligations, and will be completed in the course of bilateral consultation between the U.S. and the FATCA Partner.

FATCA PARTNER OBLIGATIONS

A. INFORMATION GATHERING OBLIGATIONS

Under Article 2 of each of the model agreements, the FATCA Partner will be required to obtain information from each “reporting” FFI in the FATCA Partner4 with respect to all “U.S. Reportable Accounts.” This requirement generally applies to (i) any “reporting” FFI resident in the FATCA Partner, but excluding any branches of such FFI that are located outside of the FATCA Partner, and (ii) any “reporting” branch of a Financial Institution not resident in the FATCA Partner, if such branch is located in the FATCA Partner.

The definition of Financial Institution in the model agreements is consistent with the definition in with the Proposed Regulations as including any custodial institution, depository institution, investment entity or specified insurance company. However, the definition of “investment entity” differs from the definition (i.e., a “financial institution that is engaged primarily in the business of investing”) found in the Proposed Regulations. The model agreements define an “investment entity” as any entity that conducts as a business (or is managed by an entity that conducts as a business) one or more of the following activities or operations for or on behalf of a customer:

  • Trading in money market instruments (cheques, bills, certificates of deposit, derivatives, etc.); foreign exchange; exchange, interest rate and index instruments; transferable securities; or commodity futures trading;
  • Individual and collective portfolio management; or
  • Otherwise investing, administering, or managing funds or money on behalf of other persons.

The definition of “investment entity” in the model agreements is intended to be interpreted in a manner consistent with similar language in the definition of “financial institution” in the Financial Action Task Force Recommendations.

The model agreements also differ from the Proposed Regulations in the definition of the type of account that is subject to reporting by the FFI. Under the Proposed Regulations, a “U.S. Account” is the subject of the reporting requirement, and reporting is required with respect to certain entities’ “substantial U.S. owners,” who are defined, in general, as any specified U.S. person that owns, directly or indirectly, more than a 10 percent interest in the entity (or, in the case of certain investment entities, a specified U.S. person that owns any interest in the entity). Under the model agreements, the relevant account is instead called a “U.S. Reportable Account,” and a “U.S. Reportable Account” is defined as a Financial Account maintained by a FATCA Partner FFI and held by one or more specified U.S. persons or by a non-U.S. entity with one or more “Controlling Persons” that is a specified U.S. person. Thus, unlike the Proposed Regulations, which require reporting with respect to “substantial U.S. owners” of certain foreign entities (which, in some cases could mean any U.S. owner), the model agreements focus instead on whether a U.S. person has control over an entity. The term “Controlling Persons,” is borrowed from existing Anti-Money Laundering / Know-Your-Client requirements. For purposes of the model agreements, “Controlling Persons” are defined as “natural persons who exercise control over an entity. In the case of a trust, this term means the settlor, the trustees, the protector (if any), the beneficiaries or class of beneficiaries, and any other natural person exercising ultimate effective control over the trust, and in the case of a legal arrangement other than a trust, such term means persons in equivalent or similar positions.” The definition goes on to say that “the term “Controlling Persons” shall be interpreted in a manner consistent with the Recommendations of the Financial Action Task Force.” In European anti-money laundering legislation, “control” in this context has often been interpreted to include ownership above, or at or above (depending on the type of entity), a 25% threshold.

The definition of U.S. Reportable Account further clarifies that the only accounts that will be treated as U.S. Reportable Accounts are accounts that have been identified as such through the application of the due diligence procedures set out in Annex I of the agreement. Under the model agreements, the following information must be obtained from each reporting FFI in the FATCA Partner with respect to all U.S. Reportable Accounts:

  • The name, address, and U.S. taxpayer identification number (“TIN”) of each specified U.S. person that is an “Account Holder”5 of such account and, in the case of a Non-U.S. Entity that, after application of the due diligence procedures set forth in Annex I, is identified as having one or more “Controlling Persons” that is a specified U.S. person, the name, address, and U.S. TIN (if any) of such entity and each such specified U.S. person;
  • The account number (or functional equivalent in the absence of an account number);
  • The name and identifying number of the FATCA Partner FFI where the account is held;
  • The account balance or value (including, in the case of a cash value insurance contract or annuity contract, the cash value or surrender value) as of the end of the relevant calendar year or other appropriate reporting period or, if the account was closed during such year, immediately before closure;
  • In the case of any “Custodial Account”:6
    • The total gross amount of interest, the total gross amount of dividends, and the total gross amount of other income generated with respect to the assets held in the account (or with respect to the account) during the calendar year or other appropriate reporting period; and
    • The total gross proceeds from the sale or redemption of property paid or credited to the account during the calendar year or other appropriate reporting period with respect to which the FFI acted as a custodian, broker, nominee or otherwise as an agent for the Account Holder;
    • In the case of any “Depository Account,”7 the total gross amount of interest paid or credited to the account during the calendar year or other appropriate reporting period; and
    • In the case of any account that is not a Custodial Account or Depository Account, the total gross amount paid or credited to the Account Holder with respect to the account during the calendar year or other appropriate reporting period with respect to which the FFI is the obligor or debtor, including the aggregate amount of any redemption payments made to the Account Holder during the calendar year or other appropriate reporting period.

This list of required information tracks the information required to be reported by FFIs under the FFI agreement described in the Proposed Regulations.8

Consistent with the phase-in provisions provided by the Proposed Regulations, the owner identifying information (name, address, TIN, account number), FFI name, and account balance must be collected beginning in 2013. In 2015, FATCA Partners will be required to obtain the rest of the information outlined above, except information about gross proceeds paid or credited to Custodial Accounts, which need not be collected until 2016.  

With respect to accounts maintained by a Financial Institution as of December 31, 2013 (“Preexisting Accounts”), the FATCA Partner is not required to obtain and include in the exchanged information the U.S. TIN of any relevant person if such taxpayer identifying number is not in the records of the Reporting FFI. In this case, the FATCA Partner will need to obtain and include in the exchanged information the date of birth of the relevant person, if the reporting FFI has such date of birth in its records. In addition, with respect to Preexisting Accounts, the model agreements commit FATCA Partners to establish, by January 1, 2017, for reporting with respect to 2017 and subsequent years, rules requiring FFIs to obtain the U.S. TIN of each Account Holder of a U.S. Reportable Account.

B. INFORMATION EXCHANGE OBLIGATION

Article 3 of the model agreements contains the provisions that detail how information will be exchanged. Under the model agreements, information will be exchanged within nine months after the end of the calendar year to which the information relates, except that information relating to calendar year 2013 is due no later than September 30, 2015. The competent authorities of each of the U.S. and the FATCA Partner are charged with establishing the procedures for the exchange of information, compliance and enforcement.

C. COMPLIANCE AND ENFORCEMENT

The model agreements also contain provisions for managing non-compliance, and have separate procedures for “minor and administrative errors” and “significant non-compliance.”9 With respect to “minor and administrative errors,” the competent authority of one country (or the U.S. competent authority, in the nonreciprocal agreement) is authorized to seek information directly from the relevant financial institution (although it may be required to notify the competent authority in the reporting financial institution’s jurisdiction). In cases of significant non-compliance, the competent authority of one country (for example, the U.S. competent authority) must notify the other country’s competent authority (for example the U.K. competent authority) that there has been significant non-compliance with respect to a particular financial institution, and that competent authority (in our example, the U.K. competent authority) will apply its domestic laws (including penalties) to address the non-compliance. When an FFI is non-compliant (rather than a U.S. financial institution), if this procedure does not cure the deficiency within 18 months, the United States will treat that FFI as a nonparticipating FFI and will publicly identify it as such.

The model agreements also include a provision requiring the implementation, as necessary, of requirements to prevent the reporting obligations contemplated by the agreement from being circumvented. There is also a specific provision in both model agreements allowing financial institutions to use the assistance of third-party service providers in fulfilling the obligations imposed by the agreement (although these obligations will, nonetheless, remain the ultimate responsibility of the reporting financial institution).

TREATMENT OF FATCA PARTNER FFIs

A. TREATED AS COMPLYING UNDER FATCA

Provided that an FFI in the FATCA Partner complies with the following requirements, the FFI will be treated as complying with FATCA and will not be subject to FATCA withholding. Under the model agreements, FFIs in FATCA Partners will be required to:

  • Identify U.S. Reportable Accounts and report the information described above annually to the tax authority of the FATCA Partner;
  • Report annually the name of, and aggregate amount of payments made in 2015 and 2016, to nonparticipating FFIs;
  • To the extent the FFI has elected to be a qualified intermediary for other reporting purposes under the Internal Revenue Code, or has elected to be a withholding trust or withholding partnership, the FFI must withhold 30 percent of any U.S. Source Withholdable Payment10 (which does not include gross proceeds from the sale or disposition of U.S. stocks and bonds) to any nonparticipating FFI; and
  • If the FFI has not elected to be a qualified intermediary or withholding trust or partnership, to the extent it makes a payment of, or acts as an intermediary with respect to, a U.S. Source Withholdable Payment to any nonparticipating FFI, the FFI must provide to the person from whom it directly receives the U.S. Source Withholdable Payment the information required so that the person making the payment can satisfy its own FATCA withholding and reporting obligations with respect to such payment.  

The model agreements do not directly deal with “foreign passthru payments” or gross proceeds withholding other than to indicate a joint intent to develop a “practical and effective alternative approach to achieve the policy objectives of foreign passthru payment and gross proceeds withholding that minimizes burden.”11

The model agreements provide that the United States will not require an FFI in a FATCA Partner to withhold tax on payments to recalcitrant account holders or to close such accounts, if the U.S. Competent Authority receives the relevant information with respect to each account.  

Under the Proposed Regulations, in order for an FFI to be a Participating FFI, it must not have any nonparticipating FFIs in its affiliated group. However, for a grace period that terminates on December 31, 2015, to the extent that local laws prevent all FFIs in an affiliated group from complying with FATCA, other FFIs in the same affiliated group will still be eligible to be Participating FFIs if both the FFIs in restricted jurisdictions and the other members of the affiliated group undertake certain activities.12 Under the model agreements, however, an FFI in a FATCA Partner jurisdiction will not be prevented from becoming a Participating FFI as a result of being related to entities or branches that are nonparticipating FFIs if such related parties and branches are operating in jurisdictions that prevent them from becoming a Participating or deemed-compliant FFI. Importantly, the relief granted will extend indefinitely. The actions that an FFI is required to take under the model agreement to avoid being treated as a nonparticipating FFI are also less stringent than the requirements under the Proposed Regulations:

  • The FFI in the FATCA Partner will be required to treat the related party or branch as a nonparticipating FFI for purposes of the withholding and reporting requirements of the model agreement;
  • The branch or related party will be required to report U.S. accounts to the extent permitted by local laws; and
  • The branch or related party may not solicit U.S. accounts from individuals who are not resident in that country.

B. DUE DILIGENCE REQUIREMENTS

Annex I of the model agreement sets out the due diligence obligations for identifying and reporting on U.S. Reportable Accounts and on payments to certain nonparticipating FFIs. Under the model agreements, a FATCA Partner may allow its FFIs to rely on the procedures described in relevant U.S. Treasury Regulations to establish whether an account is a U.S. Reportable Account or an account held by a nonparticipating FFI.13 Like the Proposed Regulations, the model agreements provide separate rules and procedures for Preexisting Accounts (which, in the case of the model agreements, includes all accounts maintained by the FFI as of December 31, 2013), lower-value accounts (accounts with a balance or value above $50,000 and below $1,000,000), and accounts whose value or balance exceeds $1,000,000.  

The model agreements also distinguish between entity accounts and individual accounts, providing rules and procedures for each. However, there are small differences between the due diligence criteria that are specified in the model agreements and their counterparts in the Proposed Regulations.14 These changes may be informal indications of refinements that the IRS and Treasury Department intend to make to the final FATCA regulations.

  1. Preexisting Individual Accounts

Preexisting Individual Accounts that are Depository Accounts whose balance or value does not exceed $50,000 (and Preexisting Individual Accounts that are cash value insurance contracts and annuity contracts whose value does not exceed $250,000) are not reportable. The model agreements also provide that if the FATCA Partner or the United States has laws in place that prevent the sale of cash value insurance contracts or annuity contracts to U.S. residents (for example, if the relevant financial institution does not have the required registration under U.S. law, and the laws of the FATCA Partner require reporting or withholding with respect to insurance products held by residents of the FATCA Partner), Preexisting Accounts that are held by individuals and that are cash value insurance contracts or annuity contracts do not need to be identified or reported. This rule is not in the Proposed Regulations, and does not apply to new Individual Accounts.

As in the Proposed Regulations, FFIs are required to conduct an electronic record search of all electronically searchable data maintained by the FFI for any “U.S. indicia.”15 If no U.S. indicia are found, no further review is required. If a particular account holder is found to have a U.S. place of birth, additional information must be obtained and reviewed by the FFI, including a self-certification that the account holder is neither a U.S. citizen nor U.S. resident for tax purposes, evidence of non-U.S. citizenship, and a copy of the account holder’s documentation regarding loss of U.S. citizenship or a reasonable explanation of why the individual is not a U.S. citizen. Self-certification as to non-U.S. citizenship and evidence as to foreign citizenship is also generally required if the following U.S. indicia are present: (i) a “current U.S. mailing or residence address, or one or more U.S. telephone numbers associated with the account,” (ii) standing instructions to transfer funds to an account maintained in the U.S., or (iii) a currently-effective power of attorney or signatory authority granted to a person with a U.S. address, or an “in care of” or “hold mail” address that is the sole address identified for the account holder. The rules in Annex I regarding U.S. indicia and documentary evidence are similar to the rules in the Proposed Regulations. With respect to accounts valued at $1,000,000 or higher, the model agreements provide additional due diligence requirements that mirror the high-value account rules in the Proposed Regulations.

  1. New Individual Accounts

New individual accounts that are Depository Accounts or cash value insurance contracts and annuity contracts whose balance or value does not exceed $50,000 are not reportable.

The model agreements require FFIs to obtain a self-certification from individuals opening a new account to determine whether the account holder is resident in the U.S. for tax purposes. The model agreement does not appear to require that this certification be made under penalties of perjury, but does require the FFI to confirm the reasonableness of the self-certification based on the information that it has obtained in connection with the opening of the account, including any documentation collected pursuant to Anti-Money Laundering / Know-Your-Client procedures. If the self-certification indicates U.S. tax residency, the FFI must obtain the account holder’s U.S. TIN and treat the account as a U.S. Reportable Account. This requirement is consistent with the requirement in the Proposed Regulations to obtain an IRS Form W-8 or W-9 from each individual account holder, but does not contain the exception in the Proposed Regulations that allows FFIs to obtain documentary evidence in place of self-certification for individual accounts that are offshore.

  1.  Entity Accounts

The due diligence requirements for entity accounts also depend on whether the account is a Preexisting Entity Account or an account opened after December 31, 2013. Preexisting entity accounts do not have to be reviewed, identified, or reported if they have a balance that does not exceed $250,000 as of December 31, 2013 and do not have to be reviewed, identified, or reported until the balance later exceeds $1,000,000. Preexisting entity accounts must be reported if the entity account holder is a specified U.S. person, or if it is a passive non-financial foreign entity with one or more Controlling Persons who are U.S. citizens or residents. If the account holder is a Financial Institution, the account is not reportable, but the FFI must determine if the account holder is a nonparticipating FFI for FATCA withholding purposes. In general, the information that must be reviewed to determine whether an entity account is of a type identified above is the information that has been collected for those accounts that is maintained for regulatory or customer relationship purposes, including information collected pursuant to anti-money laundering or “know your client” procedures. Only in a few specific cases would self-certification be required.

For new entity accounts, the FFI must determine whether the account holder is:  

  • A specified U.S. person;
  • An FFI in a FATCA Partner jurisdiction or a Partner Jurisdiction Financial Institution;16
  • A participating FFI, a deemed-compliant FFI, an exempt beneficial owner, or an excepted FFI (as defined in the Proposed Regulations); or
  • An Active NFFE or Passive NFFE.17

An FFI can determine if the account holder is an Active NFFE, FATCA Partner FFI, or Partner Jurisdiction Financial Institution, based on publicly available information (or information the FFI has in its files). If the entity is not of that type, the type of entity account holder must be determined by a self-certification from the account holder. This is generally consistent with the Proposed Regulations requirements for entity payees but does appear to give some additional flexibility on the information that may be relied upon.18

C. NON-REPORTING FFIS

Annex II of the model agreements will provide a list of FFIs in the FATCA Partner who will not be required to report and a list of products that will not be treated as financial accounts. This Annex attached to the model agreement currently has no content, but instead is intended to be completed after consultation among the signing countries (and will be different for each FATCA Partner). The Annex divides non-reporting FFIs into two categories: (i) exempt beneficial owners, and (ii) deemed-compliant FFIs. It also provides a placeholder for the parties to negotiate the categories of accounts and products found in the FATCA Partner’s market that will not be treated as financial accounts and so will not be U.S. Reportable Accounts under FATCA.

U.S. RECIPROCITY

The reciprocal version of the model agreement requires the United States to exchange information currently collected on accounts held in U.S. financial institutions by residents of the FATCA Partner. According to the U.S. Treasury Department press release issued along with the model agreements, the reciprocal version will be available only to countries with whom the United States has in effect an income tax treaty or tax information exchange agreement (true for both model agreements), and with respect to which the IRS and Treasury Department have made a determination that the FATCA Partner has in place “robust protections and practices to ensure that the information remains confidential and that it is used solely for tax purposes.” This determination will be made on a case-by-case basis.

Under the reciprocal model agreement, the United States will agree to report, with respect to each “FATCA Partner reportable account” in a U.S. financial institution held by a resident of the FATCA Partner:

  • The name, address, and FATCA Partner TIN of any person that is a resident of the FATCA Partner and is an Account Holder of the account (if the FATCA Partner does not issue TINs, date of birth will be reported);
  • The account number (or the functional equivalent in the absence of an account number);
  • The name and identifying number of the Reporting U.S. Financial Institution;
  • The gross amount of interest paid on a Depository Account;
  • The gross amount of U.S.-source dividends paid or credited to the account; and
  • The gross amount of other U.S.-source income paid or credited to the account subject to reporting under current information-gathering provisions of the Internal Revenue Code.

An account held by a U.S. financial institution will be a “FATCA Partner reportable account” if:

  • in the case of a Depository Account, the account is held by an individual resident in the FATCA Partner and more than $10 of interest is paid to such account in any given calendar year; or
  • in the case of a Financial Account other than a Depository Account, the Account Holder is a resident of the FATCA Partner.

Under these provisions, the coverage of U.S.-based accounts held by residents of FATCA Partners is less comprehensive than coverage of U.S. accounts held at FATCA Partner FFIs because certain accounts (e.g., depository accounts held by entities) are not reportable. Presumably, this discrepancy exists because U.S. financial institutions are not currently required to report to the IRS additional information regarding accounts held by nonresidents. However, the reciprocal agreement commits the United States to work to further improve its transparency and enhance the exchange relationship with the FATCA Partner by pursuing the adoption of domestic regulations and supporting relevant legislation to achieve a level of reciprocal automatic exchange in which the information the United States is able to provide is equivalent to the level of information being provided by the FATCA Partner.

COMMITMENT TO INFORMATION EXCHANGE AND TRANSPARENCY

The model agreements contain several additional provisions that require the parties to commit to “continue to enhance the effectiveness of information exchange and transparency.” First, as noted above, the United States and the FATCA Partner agree to work together, along with other partners, to develop a practical and effective alternative approach to achieve the policy objectives of the FATCA concepts of foreign passthru payments and gross proceeds withholding in a way that minimizes the burden of these concepts. Both concepts are not fully developed in the Proposed Regulations. Second, the parties commit to work with other partners and the OECD (as well as the European Union where relevant) to adapt the terms of the model agreements to a common model for automatic information exchange, including developing reporting and due diligence standards for financial institutions. Third, the FATCA Partner commits to establishing by January 1, 2017 (for reporting for 2017 and subsequent years), rules requiring the FATCA Partner FFIs to obtain the U.S. TIN of each specified U.S. person with respect to Preexisting Accounts. In the reciprocal agreement, the United States similarly agrees that, by January 1, 2017, it will obtain and report the FATCA Partner TIN of each Account Holder of a FATCA Partner reportable account with respect to Preexisting Accounts.