This publication has asked Mike Laveman, a partner at accounting firm EisnerAmper, about latest developments in how the US FATCA Act is to be implemented.

Editor’s note: This
publication asked Mike Laveman, a partner at accounting firm EisnerAmper, about the latest developments in how the US
FATCA Act is to be implemented. The legislation is due to start taking effect
from next year.

Could you spell out,
as clearly as you can, what the new IRS regulations say?

On 8 February 2012 the Department of Treasury issued nearly
400 pages of proposed regulations dealing with FATCA. FATCA was signed into law
on 3/18/10 and due its large scope implantation date is 1/1/13. FATCA’s purpose
is to obtain transparency as to where US Citizens have invested their
money. Simultaneously, the Department of Treasury issued a joint statement with
France, Germany, Italy,
Spain and the UK which expressed a mutual intent to enter into an inter-governmental  approach to improving international tax
compliance and implementation of FATCA.

The goal of the intergovernmental framework was to address
legal issues under FATCA, simplify FATCA implementation and reduce compliance
costs

On 26 July 2012 the Department of Treasury published a
model intergovernmental agreement. This agreement reflects the government to
government sharing of information concepts that was expressed in February. The
model agreement spells out specific procedures on how information is to be
shared. Two versions of the model agreement have been issued - a reciprocal and
non-reciprocal version. The reciprocal version will allow foreign governments
to receive information from the US about accounts held in US financial
institutions by residents of their countries.

What are the key
features of the new guidance? Why are they important?

The intergovernmental agreements will allow Foreign
Financial Institutions and Non-Financial Foreign institutions to avoid directly
registering their entities with the Internal Revenue Service which they may
have an obligation otherwise under FATCA. In lieu of registration these
institutions will provide information directly to their government who in turn
will provide the information to the US. 

What sort of
financial entities will be affected?

FATCA impacts a wide range of foreign financial
institutions. The rules were written extremely broadly and will capture non-US entities that accept deposits in the ordinary course of a banking or similar
business, holds financial assets for the account of others, or is engaged primarily
in the business of investing or trading securities (this will include non us
hedge funds, private equity, venture capital funds)

On balance, does the
new guidance add or detract from the severity of FATCA and its provisions?

The intergovernmental agreement still requires financial
institutions to share nearly the same amount of information that would have
otherwise been required under registration with the IRS. The only difference is
that it will be provided directly to their government. Some of the items
required to be shared include US
account holders’ information such as:

a.         Name, address,
and US
taxpayer identification number

b.         Account
numbers

c.         Account
balance/value

d.         In some
cases the amount of income generated by the account

One important aspect to the intergovernmental agreement is
that to the extent a participating financial institution has an account holder
which will not provide information to them to identify themselves as US or non-US (this is called a recalcitrant account holder) the financial institution
will not be required to implement withholding taxes or close the account as
long as the US government receives information from the institution (such as
some of the items listed in item 4)

What major areas of
uncertainty remain after this new development?

Timing is an issue with respect to FATCA registration.
Generally FATCA registration should take place no later than 6/30/13 in order
to be viewed as FATCA compliant by 1/1/14 (1/1/14 is a key date as this is the
starting point for US withholding agents to start withholding on certain US-sourced income ). Since the model agreement is not finalised financial
institutions will need to monitor its finalisation. Rather than rush to IRS
registration it may be prudent to wait to see when these agreements may be
finalised. It is anticipated that final FATCA regulations as well as the actual
FATCA registration process will be completed by 12/31/13 but its unknown as to
when each respective government may sign an agreement

What is your overall
impression of how well firms are preparing for this? Do you see any differences
in parts of the world, such as Asia/Europe/Latin America, etc?

The model agreement issued today generally covers the five countries listed above. Additionally, in June the Treasury Department issued a
statement that the US
governmental is also pursuing an intergovernmental framework with Switzerland and Japan.