Depiction of Q&A on FATCA from US Mission in Germany

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Background

 ·  ·    FATCA generally requires a foreign financial institution (FFI) to enter into an agreement with the IRS to report information about certain accounts held by U.S. persons or foreign entities owned by U.S. persons.  An FFI that does not enter into an agreement with the IRS will be subject to withholding on certain U.S. source payments, gross proceeds from sales of U.S. securities, and passthru payments. 

 ·         Certain financial institutions and foreign governments have expressed concerns about the challenges they face in implementing FATCA’s compliance, information reporting, and withholding systems requirements by the statutory effective date.  

 ·         On February 8th, Treasury issued comprehensive proposed regulations under FATCA, providing guidance for FFIs and U.S. withholding agents, and providing for a phased implementation of the obligations imposed by FATCA. 

 o   The proposed regulations reflect consideration of the comments received, and provide further reduction of burden, including:  (i) more carefully tailoring the due diligence required of FFIs with respect to preexisting accounts to focus on high-risk accounts; (ii) expanding the categories of FFIs that will be deemed to comply with the requirements of FATCA if they meet certain conditions to prevent them from being used to evade U.S. tax; (iii) extending the phase-in of information reporting obligations; and (iv) expanding the scope of obligations that will be grandfathered from withholding under FATCA. 

 ·         Also on February 8th, the Treasury Department issued a joint release with France, Germany, Italy, Spain and the United Kingdom announcing a framework for possible government-to-government agreements that would facilitate the implementation of FATCA by financial institutions in these countries.
 

·         Tax Policy continues to engage in discussions with foreign governments and foreign financial institutions to understand and explore approaches for addressing their concerns about FATCA.

Q&A

Q: Foreign financial institutions and foreign governments have expressed concern about the compliance burdens under “FATCA” (the Foreign Account Tax Compliance Act provisions of the HIRE Act).  How is Treasury responding to these concerns?

 ·         Treasury is actively consulting with financial institutions that will be affected by FATCA, as well as with concerned foreign governments. 

·         The Administration is committed to continued cooperation with other governments in addressing offshore tax evasion, and the Treasury Department is engaged in a dialogue with interested foreign governments regarding the implementation of FATCA.

·         Treasury has just issued comprehensive proposed regulations, which reflect consideration of the comments received and reduce compliance burdens, in a manner consistent with the goal of addressing the misuse of foreign accounts in order to evade U.S. taxation.

 

Q: Do financial institutions around the world have sufficient time to implement the change necessary to comply with the provisions of the Foreign Account Tax Compliance Act (FATCA)? 

 ·         Treasury and the IRS have just issued comprehensive proposed regulations, which provide for phasing in the requirements of FATCA.  The proposed regulations are designed to give foreign financial institutions and U.S. withholding agents sufficient time to build the systems they will need to implement FATCA.

·         The regulations phase in the implementation of the information reporting, due diligence, and withholding obligations imposed on financial institutions under FATCA from 2013 - 2017.

·         The regulations reflect a very constructive, ongoing dialogue with financial institutions and foreign governments.  Treasury and the IRS will continue to work closely with businesses and foreign governments to implement FATCA in a manner that reasonably balances the administrative burdens with the compliance goals.

 

Q:  Does the joint statement with France, Germany, Italy, Spain, and the UK regarding “FATCA” (the Foreign Account Tax Compliance Act provisions of the HIRE Act) mean that these countries will be exempt from FATCA? 

 ·         The mutual agreements contemplated by the joint statement would not provide an exemption from FATCA for any jurisdiction.  Rather, these agreements would allow for an alternative approach to the reporting required under FATCA by allowing foreign financial institutions (“FFIs”) to report the necessary information to their own governments, rather than to the IRS.  Information would then be provided to the IRS through information exchange based on our existing agreements.

 

·         Such an alternative approach would benefit FFIs by reducing compliance costs and eliminating legal impediments to compliance.  In addition, by building on our existing information exchange relationships with these countries, these agreements would allow for the most efficient and effective implementation of FATCA in a mutually beneficial manner. 

 

Q:  The joint statement says that certain statutory requirements will be eliminated under the agreements.  How can Treasury do that?  Are you exempting these countries from FATCA?

 

·         The joint statement does not contemplate an exemption from FATCA; rather, it contemplates an alternative way of implementing FATCA.  Many of the eliminated or reduced requirements contemplated are simply a direct result of the fact that all financial institutions in the jurisdiction would be required to report information.  Moreover, the participation of foreign governments means that certain requirements are no longer necessary.

 

Q:  Why does the joint statement only apply to the five named countries?  Will the United States only consider government-to-government agreements with countries that have a bilateral tax treaty with the United States?  What if a country does not have a tax treaty or tax information exchange agreement with the United States?

 ·         While the joint statement only includes France, Germany, Italy, Spain and the United Kingdom, the agreements contemplated by the joint statement will serve as models for agreements with other countries with whom it is appropriate to pursue a government to government approach to FATCA implementation. Treasury and the IRS are engaged in discussions with a number of foreign governments, and are open to exploring such an approach with other governments, where appropriate.   

·         Bilateral tax treaties and tax information exchange agreements (TIEAs) provide a legal mechanism for exchange of information on a government to government basis.

·         Implementation of FATCA does not require an agreement, however.  Countries may allow their financial institutions to comply with FATCA without the government entering into an agreement with the United States.  Treasury and the IRS also remain willing to explore expanding our information exchange relationships, where appropriate.

 

Q:  The joint statement says that the United States is willing to reciprocate in collecting and exchanging information on accounts held in U.S. financial institutions.  Is the IRS going to collect FATCA information from U.S. financial institutions and send it to foreign governments?

 

·         The United States currently exchanges tax information on an automatic basis with France, Germany, Italy, Spain, and the UK, as well as with certain other countries.  Treasury and the IRS have also proposed regulations to collect certain additional information that may be exchanged with these countries, where appropriate. 

 

·         Under existing automatic exchange relationships, reciprocity does not mean equivalence.  Generally, countries are only interested in information that is relevant for enforcing their own laws.     

 

Joint Statement from the United States, France, Germany, Italy, Spain and the United Kingdom Regarding an Intergovernmental Approach to Improving International Tax Compliance and Implementing FATCA.

This press release was personally received by the club's Vice President Alexander von Engelhardt from the American Mission in February 17, 2012.