This week, the Treasury Department published Announcement 2016-27 detailing its plan to reevaluate jurisdictions whose FATCA Intergovernmental Agreement (IGA) status is treated as “in effect.” This means that Foreign Financial Institutions (FFIs) in jurisdictions whose IGA is currently signed or considered in substance may face changes to how they report their FATCA returns to the IRS in March 2017.
FATCA IGA Background: How Did We Get Here?
Since 2013, the Treasury Department has considered as being “in effect” jurisdictions who have signed the IGA, but have not yet brought it into force. In 2014, the Treasury Department made a similar decision for jurisdictions who have not even signed the IGA, but have agreed to the terms of the agreement (referred to as agreement “in-substance”). As a result, all of these jurisdictions had to maintain a firm resolve to bring the IGA into force. This arrangement works very well for FFIs in those jurisdictions, because they are permitted to get a Global Intermediary Identification Number (GIIN) to avoid the onerous withholding and likely did not have any reporting obligations since their Host Country Tax Authority is not required to report to the IRS.
What are the Implications of the Treasury Department’s Announcement 2016-27?
The new Treasury Department Announcement that it will reconsider each jurisdiction’s status one by one to ensure that it is maintaining that resolve to bring IGA into force, changes the previous operating procedure for these FFIs. If a jurisdiction wishes to retain its status, it must provide Treasury, by the end of this year with a “detailed explanation of why the jurisdiction has not yet brought the IGA into force and a step-by-step plan that the jurisdiction intends to follow…” Moreover, the plan must include “expected dates for achieving each step.” Failure to adhere to that timeline could result in Treasury determining that “the jurisdiction is no longer demonstrating firm resolve.” If the jurisdiction loses its status, then those FFIs must sign the FFI Agreement within 60 days. This will require FFIs to commit substantial resources to identify and report on certain U.S. accounts and to withhold on payments to non-participating FFIs.
What Does this Mean for FFIs Operating in FATCA IGA Jurisdictions?
FFIs in jurisdictions who are up for IGA review should monitor the Treasury website to ensure they are still covered. If they’re not, they may need to report next year along with other FFIs in jurisdictions that have no IGA; that reporting deadline is March 31.
