The "Model 2" agreement had been expected by many FATCA-watchers, who said the intergovernmental agreement would not work in certain jurisdictions.
A 31-page outline of the new Model 2 Template, on the US Treasury’s website, explains that it is for use in situations in which a foreign entity (“FATCA partner”) “may not be able to comply with certain aspects” of the FATCA legislation, due to “domestic legal impediments”, and therefore is obliged to proceed on the basis of directly reporting to the US International Revenue Service, rather than by working through the government of the country in which it operates, as was the basis of the earlier IGA model agreement template.
As reported, that IGA was unveiled back in July, at which point it had been agreed to in principle by the UK, France, Italy, Germany and Spain.
Since then, the US has said that more than 50 countries and jurisdictions are in talks aimed at arranging for their resident financial institutions to comply with FATCA (Foreign Account Tax Compliance Act).
Sources say that this second FATCA model template is a variation agreed to in principle so far by Switzerland and Japan, which differs from the earlier IGA in that it creates a framework for direct reporting by foreign financial institutions (FFIs) to the IRS, but with a system for providing information on what are called “recalcitrant” account holders, which involves the option of having information disclosed via the relevant foreign government, rather than by the FFI.
Americans abroad ‘welcome’ Model 2
The American Citizens Abroad (ACA), a Geneva-based organisation which represents American expatriates, said it welcomed the new model agreement template, because it includes “a loosener to allow small financial institutions with [a] local client base to be considered compliant under FATCA”.
“This new version of the Intergovernmental Agreement contains provisions that require a foreign financial institution that wishes to take advantage of certain favourable provisions to avoid policies or practices that discriminate against opening or maintaining accounts for Americans residing in the foreign country covered by the IGA,” the ACA said.
“This is a clear indication that ACA advocacy, along with that of other overseas organisations, is having an effect, and the concerns of ACA’s members are being addressed.”
In October, the Treasury reported that it was delaying the starting dates of key parts of FATCA for those non-US financial institutions in countries not covered by an IGA with the US.
As a result, procedures for meeting the FATCA reporting requirements by companies in non-IGA-signatory countries must be in place by 1 Jan 2014 – a year later than had been the case before that announcement.
Crackdown on American tax evaders
As reported, FATCA was signed into law in 2010 by President Obama as part of an effort to crack down on American taxpayers who make use of non-US accounts in order to evade paying US taxes on their non-US income.
It was introduced by lawmakers in the wake of several events that shone a spotlight on the existence and scale of such accounts, including a case brought against Swiss bank UBS by the US for its role in enabling US clients to avoid their tax obligations. As part of a settlement in 2009, UBS was forced to pay a fine and release the names of some 4,500 clients to the US authorities.
To read and download the new Agreement Between the United States of America and [FATCA Partner] for Cooperation to Facilitate the Implementation of FATCA, click here.
