Daily Tax Update - July 26, 2012: Treasury Releases Model Intergovernmental Agreement for Implementing FATCA

TREASURY RELEASES MODEL INTERGOVERNMENTAL AGREEMENT FOR IMPLEMENTING FATCA: Today, the Department of Treasury released a model intergovernmental agreement, developed in consultation with France, Germany, Italy, Spain and the United Kingdom, for implementing FATCA.  The countries announced their intent to explore a common approach to FATCA implementation through domestic reporting and reciprocal automatic information exchange in February 2012.

  • In the model agreement, the United States and a partner country (a "FATCA partner") agree to implement FATCA by having foreign financial institutions ("FFIs") resident in that country report information about their US accounts to the local tax authority, which then automatically exchanges such information with the United States under existing tax treaties or tax information exchange agreements ("TIEAs").  Several key issues addressed in the model agreement are described below.
    • Information Collected and Exchanged.  The agreement provides that the FATCA partner will obtain and exchange with the United States certain information about US accounts.  Beginning with respect to 2013 and 2014, the FATCA partner must report the following for each US account: the owner’s name, address, and US TIN; the account number; the name and identifying number of the FFI at which the account is held; and account balance or value.  Additional information with respect to custodial accounts (e.g., gross interest, dividends, and other income) must be reported beginning with 2015, and reporting of gross proceeds in custodial accounts, gross amount of interest paid or credited in depository accounts, and the gross amount paid or credited with respect to other accounts with respect to which the FFI is the obligor or debtor must be reported beginning with 2016.  The relevant information must be exchanged within nine months after the end of the calendar year to which the information relates, except that the information relating to 2013 shall be exchanged no later than September 30, 2015.
    • Due Diligence.  The agreement includes an annex describing due diligence obligations for identifying and reporting US accounts and payments to nonparticipating financial institutions.  The rules, which are similar to those in the proposed FATCA regulations, provide separate procedures for preexisting and new individual and entity accounts.
      • Like the proposed regulations, an FFI is required to conduct an electronic search of preexisting accounts (which are defined as those maintained as of December 31, 2013) for US indicia.  An FFI must also conduct a paper record search for accounts exceeding $1 million.  If US indicia are present, an FFI must obtain additional information to rebut US status.
      • Unlike the proposed regulations, the new individual account due diligence procedures require a FFI to obtain a "self-certification which may be part of the account opening documentation, that allows the [FFI] to determine whether the account holder" is a US person.  An FFI must also "confirm the reasonableness of such self-certification" based on information obtain in connection with the opening of the account.  An FFI is not required to examine new accounts for US indicia.
    • Application of FATCA to Partner FFIs.  The model agreement provides that each reporting FFI in the FATCA partner will be treated as FATCA-compliant if it identifies and reports US accounts and complies with certain other requirements, including reporting to the FATCA partner the name of, and aggregate amount of payments made in 2015 and 2016 to each nonparticipating financial institution.
      • If the United States receives the information contemplated under the agreement, the United States will not require a complaint FATCA partner financial institution to withhold with respect to an account held by a recalcitrant account holder or close such account.
    • Technical Implementation.  The precise procedures under which the information will be exchanged are left open.  The model agreement contemplates a further agreement between the United States and the FATCA partner on this subject.  The Treasury Department press release states that Treasury and the 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."
  • There are two versions of the model intergovernmental agreement.  As described above, both versions create a framework under which FFIs report certain information about their US accounts to the local tax authorities, which then automatically exchange such information with the United States.  However, under the "reciprocal version" of the agreement, the United States also agrees to exchange information currently collected by US financial institutions on residents of partner countries (i.e., bank deposit interest information currently scheduled to be reported by US financial institutions beginning in 2014) and commits "to further improve transparency and enhance the exchange relationship with [the FATCA partner] by pursuing the adoption of regulations and advocating and supporting relevant legislation to achieve such equivalent levels of reciprocal automatic exchange."  The nonreciprocal version of the model does not provide for the United States to exchange account information with the FATCA partner.
    • According to the Treasury press release announcing the model, the reciprocal version will only be available to jurisdictions with whom the United States has a tax treaty or TIEA and with respect to whom Treasury and the IRS "have determined that the recipient government has in place robust protections and practices to ensure that the information remains confidential and that it is used solely for tax purposes."
  • The United States and France, Germany, Italy, Spain, and the United Kingdom also released a "Joint Communique" announcing the model agreement and stating that the countries "look forward to a speedy conclusion of bilateral agreements based on this Model, including by other jurisdictions." 
  • The documents can be accessed via: joint communique, reciprocal version and a nonreciprocal version

For additional information, contact Philip R. West - mailto:pwest@steptoe.comor  Amanda Varma - avarma@steptoe.com

SENATE PASSES BILL TO EXTEND BUSH TAX CUTS TO MIDDLE-INCOME TAXPAYERS:  Last night, the Senate passed Majority Leader Harry Reid’s middle-income tax cut bill by a vote of 51-48.  The Senate had reached an agreement allowing simple majority votes for both Republican and Democratic plans.  The Senate defeated a Republican alternative offered by Sen. Orrin  Hatch by a vote of 45 to 54.  The Republican amendment would have extended the tax cuts for all income levels and instructed the Finance Committee to produce a comprehensive tax reform bill in 2013.  Hatch's amendment, which was defeated 45 to 54, included a two-year AMT patch for 2012 and 2013.

  • Senate Minority Leader Mitchell said, "The only reason we won’t block it today is that we know it doesn’t pass constitutional muster and won’t become law.  If the Democrats were serious, they’d proceed to a House-originated revenue bill as the Constitution requires."
  • Today, House Speaker John Boehner said that the House would have an opportunity next week to vote on the Senate-passed bill.  Boehner said, "If our Democrat colleagues want to offer the president’s plan or the Senate Democrat plan, we’re more than happy to give them the vote."  Boehner added, "We’ll see what they’ll offer in the Rules Committee, but it’s our belief that they ought to be able to have the vote."


1. [112th] H.R.6182 : To amend the Internal Revenue Code of 1986 to extend and expand the credit for qualifying advanced energy projects, and for other purposes.
Sponsor: Rep Thompson, Mike [CA-1] (introduced 7/25/2012)      Cosponsors (14)Committees: House Ways and Means
Latest Major Action: 7/25/2012 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

2. [112th] H.R.6202 : To amend the Internal Revenue Code of 1986 to establish the Coal Mitigation Trust Fund funded by the imposition of a tax on the extraction of coal, and for other purposes.
Sponsor: Rep McDermott, Jim [WA-7] (introduced 7/25/2012)      Cosponsors (4)Committees: House Ways and Means; House Transportation and Infrastructure
Latest Major Action: 7/25/2012 Referred to House committee. Status: Referred to the Committee on Ways and Means, and in addition to the Committee on Transportation and Infrastructure, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.

As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

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