FATCA and European countries

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Foreign Account Tax Compliance Act (FATCA), which became law in 2010 in the United States, is important achievement in U.S. efforts to cope with tax evasion by U.S. taxpayers having their accounts and other financial assets outside of the U.S. (or in other words, offshore financial assets). The objective of FATCA is reporting of foreign financial assets; withholding is the cost of not reporting.

The following entities are involved into the FATCA-reporting: U.S. taxpayers, U.S. financial institutions, foreign financial institutions. At the level of jurisdictions, the reporting is facilitated by Intergovernmental Agreements (IGAs).

For now, almost all European countries have signed IGAs or have their financial institutions registered with the tax authority of the United States - the Internal Revenue Service (IRS).

FATCA has significantly influenced International automatic information exchange on financial accounts: most of the FATCA's reporting principles are used in the automatic information exchange.

FATCA Overview

Reporting Flows

FATCA Reporting

FATCA defines two reporting information flows:

  1. Certain U.S. taxpayers holding financial assets outside the United States must report those assets to the Internal Revenue Service (IRS) on Form 8938, Statement of Specified Foreign Financial Asset
  2. FATCA will also require certain Foreign Financial Institutions (FFIs) to report directly or indirectly to the IRS information about financial accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

FATCA Participants

U.S. Taxpayers

FATCA requires certain U.S. taxpayers who hold foreign financial assets (for example, deposit and custodial accounts) with an aggregate value of more than the reporting threshold (at least $50,000) to report information about those assets on Form 8938. The form must be attached to the taxpayer’s annual income tax return. The reporting threshold is higher for married couples and taxpayers living abroad.

U.S. Financial Institutions

U.S. financial institutions are required to withhold 30% on certain U.S. source payments made to foreign entities, if they are unable to document such entities for purposes of FATCA.

Foreign Financial Institutions

In terms of FATCA, Foreign Financial Institutions (FFIs) are

FATCA exempts many categories of FFIs from the requirement to register and report, for example:

According to FATCA, a FFI may register with the IRS and to agree to report to the IRS certain information about their accounts of U.S. taxpayers.

FFIs that enter into an agreement with the IRS to report on their account holders may be required to withhold 30% on certain payments to foreign payees if such payees do not comply with FATCA.

If a FFI, which is not exempt from FATCA, does not both register and agree to report, it will face a 30% withholding tax on certain payments from the U.S made to this FFI.

If according to its local regulations a FFI can't report U.S. accounts or withhold tax, this FFI still should register with IRS as a limited FFI which means that although this FFI can't comply with the terms of an FFI Agreementthe FFI is agreeing to satisfy certain obligations.

Withholding Flows

FATCA defines the following withholding actions:

  1. U.S. financial institutions are required to withhold 30% on certain U.S. source payments made to foreign entities, if they are unable to document such entities for purposes of FATCA.
  2. Foreign financial institutions that enter into an agreement with the IRS may be required to withhold 30% on certain payments to foreign payees if such payees do not comply with FATCA.
  3. Foreign financial institutions which are not exempt from FATCA, do not both register and agree to report, will face a 30% withholding tax on certain payments from the U.S made to these FFIs.

Intergovernmental Agreements

To remove local legal obstacles, which prevent FFIs from participating in FATCA, the United States collaborated with other governments to develop two models of intergovernmental agreements (IGAs) to implement FATCA.

For a U.S. taxpayer is makes no difference which model of IGA is used by the jurisdiction where he/she has the foreign assets to be reported.

An IGA can have one of two statuses: in effect and agreed in substance.

The absence of a IGA between a jurisdiction and the U.S. doesn't mean that the jurisdiction's FFIs don't participate in FATCA. FFIs of the jurisdiction are subject to standard FATCA provisions: they must register with the IRS and agree to meet FATCA requirements in an FFI agreement, including due diligence, reporting and withholding.

FATCA and European Countries

Most of European countries and their dependent territories have agreed to participate in FATCA by signing IGAs. However, there are several countries which have not signed IGAs and several countries which agreed in substance on signing an IGA.

European Countries with no IGA

The following European countries don't have an IGA signed or agreed in substance:

European Countries Agreed in Substance

The following countries have IGAs in "agreed in substance" status:

European Countries which Signed IGAs

The rest of European counties and their dependent territories have signed the IGAs.

Model 2 IGA

Several European countries and territories have signed Model 2 IGAs: financial institutions of these countries will report will report directly to the IRS:

These agreements are non-reciprocal, and start date of the reporting is not specified in the agreements.

Model 1 IGA

The rest of the European countries have signed Model 1 IGAs: their financial institutions will report the information to their local authorities, which in turn will report it to the IRS. Under these agreements, the financial institutions are required to identify U.S. taxpayers by January 1, 2017 and to report the information for 2017 and the subsequent years.

Non-reciprocal agreements are signed with

The rest of the agreements are reciprocal.

List of Intergovernmental Agreements

Country Status Date IGA Model
 Algeria agreed 30 June 2014 Model 1
 Angola agreed 30 November 2014 Model 1
 Anguilla agreed 30 June 2014 Model 1
 Antigua and Barbuda agreed 03 June 2014 Model 1
 Armenia agreed 08 May 2014 Model 2
 Australia in effect 28 April 2014 Model 1
 Austria in effect 29 April 2014 Model 2
 Azerbaijan agreed 16 May 2014 Model 1
 Bahamas in effect 03 November 2014 Model 1
 Bahrain agreed 30 June 2014 Model 1
 Barbados in effect 17 November 2014 Model 1
 Belarus in effect 18 March 2015 Model 1
 Belgium in effect 23 April 2014 Model 1
 Bermuda in effect 19 December 2013 Model 2
 Brazil in effect 23 September 2014 Model 1
 British Virgin Islands in effect 30 June 2014 Model 1
 Bulgaria in effect 05 December 2014 Model 1
 Cape Verde agreed 30 June 2014 Model 1
 Cambodia agreed 30 November 2014 Model 1
 Canada in effect 05 February 2014 Model 1
 Cayman Islands in effect 29 November 2013 Model 1
 Chile in effect 05 March 2014 Model 2
 China agreed 26 June 2014 Model 1
 Colombia in effect 20 May 2015 Model 1
 Costa Rica in effect 26 November 2013 Model 1
 Croatia in effect 20 March 2015 Model 1
 Curacao in effect 16 December 2014 Model 1
 Cyprus in effect 02 December 2014 Model 1
 Czech Republic in effect 04 August 2014 Model 1
 Denmark in effect 19 November 2012 Model 1
 Dominica agreed 19 June 2014 Model 1
 Dominican Republic agreed 30 June 2014 Model 1
 Estonia in effect 11 April 2014 Model 1
 Finland in effect 05 March 2014 Model 1
 France in effect 14 November 2013 Model 1
 Georgia in effect 10 July 2015 Model 1
 Germany in effect 31 May 2013 Model 1
 Gibraltar in effect 08 May 2014 Model 1
 Greece agreed 30 November 2014 Model 1
 Greenland agreed 29 June 2014 Model 1
 Grenada agreed 16 June 2014 Model 1
 Guernsey in effect 13 December 2013 Model 1
 Guyana agreed 24 June 2014 Model 1
 Haiti agreed 30 June 2014 Model 1
 Holy See (Vatican City State) in effect 10 June 2015 Model 1
 Honduras in effect 31 March 2014 Model 1
 Hong Kong in effect 13 November 2014 Model 2
 Hungary in effect 04 February 2014 Model 1
 Iceland in effect 26 May 2015 Model 1
 India in effect 09 July 2015 Model 1
 Indonesia agreed 04 May 2014 Model 1
 Iraq agreed 30 June 2014 Model 2
 Ireland in effect 23 January 2013 Model 1
 Isle of Man in effect 13 December 2013 Model 1
 Israel in effect 30 June 2014 Model 1
 Italy in effect 10 January 2014 Model 1
 Jamaica in effect 01 May 2014 Model 1
 Japan in effect 11 June 2013 Model 2
 Jersey in effect 13 December 2013 Model 1
 Kazakhstan agreed 30 November 2014 Model 1
 Kuwait in effect 29 April 2015 Model 1
 Latvia in effect 27 June 2014 Model 1
 Liechtenstein in effect 19 May 2014 Model 1
 Lithuania in effect 26 August 2014 Model 1
 Luxembourg in effect 28 March 2014 Model 1
 Macau agreed 30 November 2014 Model 2
 Malaysia agreed 30 June 2014 Model 1
 Malta in effect 16 December 2013 Model 1
 Mauritius in effect 27 December 2013 Model 1
 Mexico in effect 09 April 2014 Model 1
 Moldova, Republic of in effect 26 November 2014 Model 2
 Montenegro agreed 30 June 2014 Model 1
 Montserrat agreed 30 November 2014 Model 1
 Netherlands in effect 18 December 2013 Model 1
 New Zealand in effect 12 June 2014 Model 1
 Nicaragua agreed 30 June 2014 Model 2
 Norway in effect 15 April 2013 Model 1
 Panama agreed 01 May 2014 Model 1
 Paraguay agreed 06 June 2014 Model 2
 Peru agreed 01 May 2014 Model 1
 Philippines in effect 13 July 2015 Model 1
 Poland in effect 07 October 2014 Model 1
 Portugal in effect 06 August 2015 Model 1
 Qatar in effect 07 January 2015 Model 1
 Romania in effect 28 May 2015 Model 1
 San Marino agreed 30 June 2014 Model 2
 Saudi Arabia agreed 24 June 2014 Model 1
 Serbia agreed 30 June 2014 Model 1
 Seychelles agreed 28 May 2014 Model 1
 Singapore in effect 09 December 2014 Model 1
 Slovakia in effect 31 July 2015 Model 1
 Slovenia in effect 02 June 2014 Model 1
 South Africa in effect 09 June 2014 Model 1
 Korea, Republic of in effect 10 June 2015 Model 1
 Spain in effect 14 May 2013 Model 1
 Saint Kitts and Nevis agreed 04 June 2014 Model 1
 Saint Lucia agreed 12 June 2014 Model 1
 Saint Vincent and The Grenadines agreed 02 June 2014 Model 1
 Sweden in effect 08 August 2014 Model 1
 Switzerland in effect 14 February 2013 Model 2
 Taiwan agreed 23 June 2014 Model 2
 Thailand agreed 24 June 2014 Model 1
 Trinidad and Tobago agreed 30 November 2014 Model 1
 Tunisia agreed 30 November 2014 Model 1
 Turkey in effect 29 July 2015 Model 1
 Turkmenistan agreed 03 June 2014 Model 1
 Turks and Caicos Islands in effect 01 December 2014 Model 1
 Ukraine agreed 26 June 2014 Model 1
 United Arab Emirates in effect 17 June 2015 Model 1
 United Kingdom in effect 12 September 2012 Model 1
 Uzbekistan in effect 03 April 2015 Model 1

See Also

Automatic Exchange of Information on Financial Accounts

Countries Which Will Not Automatically Exchange Account Information

External Links

  1. FATCA on IRS

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