Advances Efforts to Secure International Participation, Streamline Compliance,
and Prepare for Implementation of the Foreign Account Tax Compliance Act
WASHINGTON – The
U.S. Department of the Treasury and the Internal Revenue Service (IRS) today
issued comprehensive final regulations implementing the information reporting
and withholding tax provisions commonly known as the Foreign Account Tax
Compliance Act (FATCA). Enacted by Congress in 2010, these provisions target
non-compliance by U.S. taxpayers using foreign accounts. The issuance of the
final regulations marks a key step in establishing a common intergovernmental
approach to combating tax evasion.
These regulations provide
additional certainty for financial institutions and government counterparts by
finalizing the step-by-step process for U.S. account identification,
information reporting, and withholding requirements for foreign financial
institutions (FFIs), other foreign entities, and U.S. withholding agents.
"These regulations give the
Administration a powerful set of tools to combat offshore tax evasion
effectively and efficiently," said Deputy Secretary Neal Wolin. "The
final rules mark a critical milestone in international cooperation on these
issues, and they provide important clarity for foreign and U.S. financial
The final regulations issued today:
- Build on
intergovernmental agreements that foster international cooperation. The Treasury
Department has collaborated with foreign governments to develop and sign
intergovernmental agreements that facilitate the effective and efficient
implementation of FATCA by eliminating legal barriers to participation,
reducing administrative burdens, and ensuring the participation of all
non-exempt financial institutions in a partner jurisdiction. In order to
reduce administrative burdens for financial institutions with operations
in multiple jurisdictions, the final regulations coordinate the
obligations for financial institutions under the regulations and the
- Phase in the timelines
for due diligence, reporting and withholding and align them with the
intergovernmental agreements. The final regulations phase in over an extended
transition period to provide sufficient time for financial institutions to
develop necessary systems. In addition, to avoid confusion and unnecessary
duplicative procedures, the final regulations align the regulatory
timelines with the timelines prescribed in the intergovernmental
- Expand and clarify the
scope of payments not subject to withholding. To limit market
disruption, reduce administrative burdens, and establish certainty, the
final regulations provide relief from withholding with respect to certain
grandfathered obligations and certain payments made by non-financial
- Refine and clarify the
treatment of investment entities. To better align the obligations under FATCA with the
risks posed by certain entities, the final regulations: (1) expand and
clarify the treatment of certain categories of low-risk institutions, such
as governmental entities and retirement funds; (2) provide that certain
investment entities may be subject to being reported on by the FFIs with
which they hold accounts rather than being required to register as FFIs
and report to the IRS; and (3) clarify the types of passive investment
entities that must be identified and reported by financial institutions.
- Clarify the compliance
and verification obligations of FFIs. The final regulations
provide more streamlined registration and compliance procedures for groups
of financial institutions, including commonly managed investment funds,
and provide additional detail regarding FFIs’ obligations to verify their
compliance under FATCA.
Progress on International
Coordination, Including Model Intergovernmental Agreements
Since the proposed regulations were
published on February 15, 2012, Treasury has collaborated with foreign
governments to develop two alternative model intergovernmental agreements that
facilitate the effective and efficient implementation of FATCA.
These models serve as the basis for
concluding bilateral agreements with interested jurisdictions and help
implement the law in a manner that removes domestic legal impediments to
compliance, secures wide-spread participation by every non-exempt financial institution
in the partner jurisdiction, fulfills FATCA’s policy objectives, and further
reduces burdens on FFIs located in partner jurisdictions. Seven countries have
already signed or initialed these agreements.
Today, Treasury announced for the
first time that Norway has joined the United Kingdom, Mexico, Denmark, Ireland,
Switzerland, and Spain as countries that have signed or initialed model
agreements. Treasury is engaged with more than 50 countries and jurisdictions
to curtail offshore tax evasion, and more signed agreements are expected to
follow in the near future.
Additional Background on
the Model Agreements
On July 26, 2012, Treasury
published its first model intergovernmental agreement (Model 1 IGA). Instead of
reporting to the IRS directly, FFIs in jurisdictions that have signed Model 1
IGAs report the information about U.S. accounts required by FACTA to their
respective governments who then exchange this information with the IRS.
Treasury also developed a second
model intergovernmental agreement (Model 2 IGA) published on November 14, 2012.
A partner jurisdiction signing an agreement based on the Model 2 IGA agrees to
direct its FFIs to register with the IRS and report the information about U.S.
accounts required by FATCA directly to the IRS.
These agreements do not offer an
exemption from FATCA for any jurisdiction but instead offer a framework for
information sharing pursuant to existing bilateral income tax treaties. Under
both models, all financial institutions in a partner jurisdiction that are not
otherwise excepted or exempt must report the information about U.S. accounts
required by FATCA. Therefore, the IRS receives the same quality and quantity of
information about U.S. accounts from FFIs in jurisdictions with IGAs as it
receives from FFIs applying the final regulations elsewhere, but these
agreements help streamline reporting and remove legal impediments to
Background on FATCA
FATCA was enacted in 2010 by
Congress as part of the Hiring Incentives to Restore Employment (HIRE) Act.
FATCA requires FFIs to report to the IRS information about financial accounts
held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a
substantial ownership interest. In order to avoid withholding under FATCA, a
participating FFI will have to enter into an agreement with the IRS to:
- Identify U.S. accounts,
- Report certain information to the IRS regarding U.S.
- Withhold a 30 percent tax on certain U.S.-connected
payments to non-participating FFIs and account holders who are unwilling
to provide the required information.
Registration will take place
through an online system. FFIs that do not register and enter into an agreement
with the IRS will be subject to withholding on certain types of payments
relating to U.S. investments.
Treasury and IRS will continue to
work closely with businesses and foreign governments to implement FATCA
effectively. Updates and further information on FATCA can be found by visiting
the FATCA page at Treasury.gov