FATCA is part of a United States effort to combat tax evasion by US persons holding investments in offshore accounts. It requires US taxpayers holding foreign financial assets with an aggregate value exceeding $50,000 to report on those assets, but also requires foreign financial institutions to report directly to the Internal Revenue Service certain information about financial accounts. Governments in several countries, including the UK and Ireland, are working towards a Memorandum of Agreement with the US authorities to address this reporting requirement through their own Revenue Authorities.

FATCA is a “report or withhold” style provision – in common with the approach taken for example with the EU Savings Directive, either information is provided or a withholding tax is applied. In light of the scale of the withholding tax – 30% of any payments of US source income, along with the reach and scope of the US Funds and Insurance markets, non-compliance with this bit of fiscal imperialism on the part of the US would place institutions or indeed countries at quite a competitive disadvantage. Accordingly a number of countries (including the UK) have formulated a Model Inter-Governmental agreement which will permit financial institutions in their own territories to comply through their own Revenue Authorities. Ireland is also in discussions with the U.S. with a view to concluding such an agreement, as may several other EU Member States.

We gather that the terms of the Model Agreement, which was published in July of this year, are finalised, and not really available for any further negotiation. Some country by country interpretive clarifications may be available, but there will be no change in the text. There is scope for country specific and industry specific exemptions under the so-called “Annex II” provisions. The idea here is to allow individual Revenue Authorities to negotiate for certain institutions and products to be included as Exempt Beneficial Owners, Deemed-Compliant Financial Institutions and Exempt Products. The hope is that this will lessen the compliance requirement for some industries, while at the same time providing the US authorities with the information they need to help counter tax evasion.

We understand that Revenue is working with industry on the detail to Annex II, and requesting industry sector input to substantiate the inclusion of exemptions. Many affected businesses will already have been in touch with Revenue, perhaps through the various sectoral forums. If however you feel that your organisation may need to engage directly with Revenue in this process, please contact Brian Keegan at the Institute who will facilitate contact with the appropriate Revenue officers.Enabling provisions for the domestic application of FATCA compliance may be required in Finance Bill 2013, to be supplemented by Regulations. Ultimately, the information flow between the US and participating countries will be two way, albeit with a bias in the volume of information going to the US. While there are various commencement dates for some forms of reporting, financial institutions should be aware that certain data for FATCA compliance purposes is required to be kept for periods beginning 1 January 2013.