Saturday, October 17, 2015

Intergovernmental Agreements (IGAs) as Hybrid Tax Agreements

I recently published "Interpretation or Override? Introducing the Hybrid Tax Agreement." Here is the abstract:
In the effort to overcome foreign law impediments to the implementation of the Foreign Account Tax Compliance Act (FATCA), the U.S. Treasury introduced intergovernmental agreements (IGAs). IGAs are hybrid tax agreements: Treaties to most of the world, in the United States they instead constitute an executive interpretation of the underlying tax treaty. This introduces a great deal of interpretive uncertainty where the terms of IGAs and tax treaties conflict. Prompted by recent queries in the EU regarding the legal nature of the IGAs, this article explores a concrete example of the legal principles at stake by examining how the public policy rules for information sharing found in US tax treaties interact with the information exchange provisions found in the IGAs.
Further in, I explain that it is difficult to understand how as a matter of international law the IGA, as a document that purports to "interpret" the underlying tax treaty, in fact obviates some of the provisions of the treaty, but do so only for the party other than the United States. I conclude:
Process matters in law. It is what makes the rule of law function as a legitimate source of authority. It is ironic that even as the United States partners with its fellow OECD members to try to address the major challenges to international taxation posed by hybrid legal entities and hybrid financial instruments, Treasury has invented the hybrid tax agreement. Conflicts resulting from this invention are inevitable and I anticipate they will be costly. I believe that Treasury took a few shortcuts around established legal precedents on the road to implementing FATCA. I understand that this may be considered expedient in the effort to get FATCA to work. But in the long run the sacrifice renders a disservice to the rule of law. That sacrifice deserves careful reflection by all those affected.
I continue to be fascinated by the rapid developments in international taxation over the past several years, in terms of both substance and process/rule of law.

1 comment:

  1. Professor Christians, here's confirmation that the IRS only sent Canada data it readily has in its possession. From a post of Keith Redmond's on a Facebook expat site:

    Keith Redmond posted this on FB today:

    Please see the e-mail response I received below on 6 October from the general counsel of the World Council of Credit Unions.

    Dear Mr. Redmond,

    In the US, the only information about non-resident aliens’ accounts being collected by IRS from US-based banks and credit unions is interest income reported on IRS Form 1099-INT. This reporting requirement only applies to interest income, so there is no reporting to the IRS concerning non-interest bearing accounts held by non-resident aliens at this time.

    Other information about those accounts that FATCA requires non-US financial institutions to report to the IRS or the government of the country where they live–such as the non-resident aliens’ account balances on December 31st of each year–is not being submitted to the IRS by US institutions. This is because the statutory authority for that type of information collection on US-institutions is not in place.

    That means that the US Treasury is likely only able to share with foreign governments the information reported to it from Form 1099-INT about non-resident aliens’ interest income (if any) on deposit accounts because that is the only information being collected.


    Michael S. Edwards
    VP and General Counsel
    World Council of Credit Unions (WOCCU)