FATCA and European countries

8 September 2015

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 defines two reporting information flows:

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
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

credit institutions (for example, banks or credit unions)
custodial institutions (for example, mutual funds)
investment entities (for example, hedge funds or private equity funds)
certain types of insurance companies

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

governmental entities
non-profit organizations
small, local financial institutions
certain retirement entities

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:

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 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.
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.

According to Model 1, FFIs report the information about their U.S. accounts to the partner jurisdiction which, in turn, reports such information to the IRS on an automatic basis. The exchange of information under this model may be on a reciprocal or nonreciprocal basis.
With Model 2 FFIs report the information about their U.S. accounts to the IRS.

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.

If an IGA is in effect, then all reporting FFIs of the jurisdiction must participate in the FATCA-reporting.
In accorance with agreed in substance status, the text of such IGA has not been released and FFIs are allowed to register on the FATCA website consistent with the treatment of having an IGA in effect provided that the jurisdiction continues to demonstrate firm resolve to sign the IGA as soon as possible.

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:

Andorra. Although there is no IGA, banking entities of Andorra and other financial entities have reached the agreement with the IRS to participate in FATCA on an individual basis.
Albania. In the absence of an IGA, Albanian banks registered with the IRS, obtaining different reporting statuses. For example:
- Credit Agricole Albania Bank registered as a non-reporting member of a participating foreign financial institution group. This means, that Credit Agricole Albania Bank is not allowed to open or maintain accounts for specified U.S. persons.
- Alpha Bank Albania, coordinated by Alpha Bank AE, performed successful registration with the IRS as a deemed compliant FFI. Starting from July 1, 2014, Alpha Bank Albania, in accordance with the status chosen, started implementing a standardized and uniform procedure of identification of all its customers respecting and applying the legislative regulations of Albania as well as FATCA.
Bosnia and Herzegovina. Since there is no IGA, Bosnian banks registered with the IRS with different statuses, for example:
- Raiffeisen BANK dd Bosna i Hercegovina registered with the FATCA Status “Participating Financial Institution not covered by an IGA”.
- Hypo Alpe Adria Bank is registered as "Participating Foreign Financial Institution without signed IGA".
Monaco. All banks operating in Monaco agreed to participate in FATCA.
Macedonia. All Makedonian banks are registered with the IRS, for example:

Stopanska Banka AD Skopie, a member of the NBG Group, is registered as "Participating Foreign Financial Institution not covered by an IGA". This implies that Stopanska Banka should prepare all necessary information requested from the U.S. Tax Authorities and perform the reporting.
Alpha Bank AD Skopje, coordinated by Alpha Bank AE, performed successful registration with the IRS as a "Participating Financial Institution not covered by IGA". Starting from July 1, 2014, Alpha Bank AD Skopje, in accordance with the status chosen, started implementing a standardized and uniform procedure of identification of all its customers respecting and applying the legislative regulations of Macedonia as well as FATCA.

Russia. On June 30, 2014 Russia adopted a law allowing Russian banks to transfer data relating to FATCA directly to the U.S. tax authorities upon client consent. Before submitting this information, Russian banks will have to first report to the Russian Government. No further progress has been made.

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