Friday, July 12, 2013

FATCA delayed again, this time Treasury giving itself 6 months to get the house in order. Lesson: internationalizing a unilateral legal regime is really difficult.

Treasury issued a new Notice 2013-43 today, pushing the withholding deadline to July 1, 2014 (was January 1 2014), the portal opening to August 19, 2013 (was July 15), and the deadline to register as a FFI is now six months from when the portal opens, which I believe would be February 19, 2014 (was October 25, 2013) (but for some reason this date doesn't seem to be indicated in the Notice, instead it says "On or after January 1, 2014, each financial institution will be expected to finalize its registration information by logging into its account on the FATCA registration website, making any necessary additional changes, and submitting the information as final. Consistent with this 6-month extension, the IRS will not issue any GIINs in 2013. Instead it expects to begin issuing GIINs as registrations are finalized in 2014"). Accordingly, no GIINs will be issued in 2013, IRS "expects to begin issuing GIINs as registrations are finalized in 2014," with the first posting of the compliant FFI list by June 2, 2014.

All of this is going to require Treasury to amend the regulations and the model IGAs to adopt these rules, but taxpayers are advised they can rely on the Notice until that happens. Here is the explanation:
Comments have indicated that certain elements of the phased timeline for the implementation of FATCA present practical problems for both U.S. withholding agents and FFIs. In addition, while comments from FFIs overwhelmingly supported the development of IGAs as a solution to the legal conflicts that might otherwise impede compliance with FATCA and as a more effective and efficient way to implement cross-border tax information reporting, some comments noted that, in the short term, continued uncertainty about whether an IGA will be in effect in a particular jurisdiction hinders the ability of FFIs and withholding agents to complete due diligence and other implementation procedures. 
In consideration of these comments, and to allow for a more orderly implementation of FATCA, Treasury and the IRS intend to amend the final regulations to postpone by six months the start of FATCA withholding, and to make corresponding adjustments to various other time frames provided in the final regulations, as described in section III below.
There is also language about jurisdictions that have signed IGAs but have not yet ratified them according to their internal procedures for ratifying international agreements, in line with what the IRS agreed to in the Norway IGA, but notice that there are no hard deadlines here. Instead, FATCA partner jurisdictions get a "reasonable" period of time to get the IGAs through their respective legislative processes. I cannot see how a foreign jurisdiction would have any recourse to an unfavorable IRS determination that its internal ratification period is "unreasonable." I'd say that falls into a rather delicate area of diplomacy: I doubt the IRS will be eager to tell some other country its legislative procedures are too slow, sorry, you're off our whitelist. In any event:
A jurisdiction will be treated as having in effect an IGA if the jurisdiction is listed on the Treasury website as a jurisdiction that is treated as having an IGA in effect. In general, Treasury and the IRS intend to include on this list jurisdictions that have signed but have not yet brought into force an IGA. The list of jurisdictions that are treated as having an IGA in effect is available at the following address: 
A financial institution resident in a jurisdiction that is treated as having an IGA in effect will be permitted to register on the FATCA registration website as a registered deemed-compliant FFI (which would include all reporting Model 1 FFIs) or PFFI (which would include all reporting Model 2 FFIs), as applicable. In addition, a financial institution may designate a branch located in such jurisdiction as not a limited branch. 
A jurisdiction may be removed from the list of jurisdictions that are treated as having an IGA in effect if the jurisdiction fails to perform the steps necessary to bring the IGA into force within a reasonable period of time. If a jurisdiction is removed from the list, financial institutions that are residents of that jurisdiction, and branches that are located in that jurisdiction, will no longer be entitled to the status that would be provided under the IGA, and must update their status on the FATCA registration website accordingly. 
More details in the link to the Notice. I have some questions about the various exceptions and wheretofores, including a general sense of confusion about which of the various procedures and penalties starts when, but I'll save these thoughts for another day.

Moral of the story: it's really, really difficult to get an international tax regime going on a unilateral basis. There is a story in this about the difference in making a unilateral rule first, and then repeatedly changing it to fix all the problems that inevitably arise, versus sitting around in international networks trying to make sure the rule will work first, before trying to implement it internationally. Empirical project for international law buffs!


  1. Interesting. I will note the US State Department Treaty Affairs Branch has not yet notified Congress under the Case Act that any of the previously signed IGA's to date are "in force" yet. Remember the State Department notified Congress of all international agreements including "sole" executive agreements I believe.

    Now one could argue for example that the US Japan IGA is simply a re-interpretation of the existing treaty not subject the even the notification requirements of the Case Act. However, the other I am not so sure of.

    Note: The US State Dept has considered TIEA's subject the Case act notwithstanding their status as Congressional Executive Agreements. In 2011 Congress was notified of the US Panama TIEA for example.

  2. From State Dept. Website:

    By statute, 1 U.S.C. 112b(a) , the Secretary of State is required to transmit to the Congress the text of any international agreement (including the text of any oral international agreement, which agreement shall be reduced to writing), other than a treaty, to which the United States is a party within 60 days of the agreement's entry into force. Where the immediate public disclosure of the agreement would be prejudicial to the national security of the United States, the Secretary transmits the agreements to the Committee on Foreign Relations of the Senate and the Committee on International Relations of the House of Representatives under an appropriate injunction of secrecy.

    Also, under this same statute, “[a]ny department or agency of the United States Government which enters into any international agreement on behalf of the United States shall transmit to the Department of State the text of such agreement not later than twenty days after such agreement has been signed.”

    In accordance with these authorities, all departments or agencies, as well as offices within the State Department and posts overseas, must transmit the text of any international agreement to the Office of the Assistant Legal Adviser for Treaty Affairs within 20 days of signature.

    If there are any questions as to whether a particular arrangement constitutes an international agreement, please contact immediately the Office of the Assistant Legal Adviser for Treaty Affairs at (202)647-1345 or by e-mail to The Secretary of State generally is responsible for determining for and within the executive branch whether an arrangement constitutes an international agreement within the meaning of the statute.

  3. If the Treasury moves toward viewing the IGAs as nothing more than competent authority agreements (as I would argue is their only legally plausible choice, and seems to be the direction w/r/to the Japan agreement), then they will not be reporting at all. Delicious international law issue, isn't it!

  4. From Accounting Today:

    A senior Treasury official who requested anonymity was asked by Accounting Today in a conference call with reporters Friday about the legality of the IGAs, but insisted the Treasury is confident that the IGAs are legal extensions of the existing international tax treaties and protocols. According to the official, the Treasury only needs to submit such agreements to the Senate for ratification if they override an existing domestic law. Under the FATCA statute, the Treasury argues, it has discretion to deem financial institutions to be compliant in low-risk circumstances, and the IGAs essentially exercise that discretion. The official said the Treasury already has the authority under its existing tax information agreements in certain circumstances for the U.S. to send information, including sending information on an automatic basis, but it only does that where it has assurance it has pre-existing agreements in place.

  5. A pleasure to read your take on it, Allison.

    The New York Times had an article up as well. I really grind my teeth every time I read headlines like this one: "Foreign Banks Win New Delay in Tax Evasion Rule"