Dickinson Wright tax Blog USA August 15 2016
The IRS has signaled its intention to tighten the thumb screws a bit further on the reporting of foreign bank accounts, in recently published Announcement 2016-27. Under the so-called FATCA (Foreign Account Tax Compliance Act) regulations, to avoid imposition of a 30% US withholding tax, the IRS generally requires complying foreign financial institutions to either register directly with the Treasury, but such institutions may alternatively register with their national authorities if their government has entered into an IGA (inter-governmental agreement) with the US. Because such agreements take time to negotiate, the IRS had rules in Notice 2013-43 that a jurisdiction that has signed, but not yet brought into force, an IGA could be treated as if it had brought the agreement into effect so long as that country was taking steps necessary to bring the IGA into force within a reasonable period of time. This allowed complying financial institutions in over 50 countries to register on the Treasury website and certify to withholding agents that withholding was not required because they were an applicable institution in a jurisdiction covered by an IGA.
Now, in the Announcement, the IRS has signaled impatience with the pace countries are implementing IGAs and held that a country that is treated as though its IGA were in effect and wishes to continue that treatment must provide the Treasury Department detailed additional information by the end of 2016 including why the country has not yet brought its IGA into force and must provide a step-by-step plan that it intends to follow in order to bring the IGA into force. Failure will result in “de-listing” and financial institutions within a de-listed country will face a choice of direct resignation with the Treasury or being subject to FATCA withholding.