Wednesday, 21 September 2016

USA: Update on jurisdictions treated as if they have an IGA in effect

The Internal Revenue Service (IRS) has published guidance informing financial institutions that, on 1 January 2017, the US treasury department will update the intergovernmental agreement (IGA) list to remove certain jurisdictions that have failed to bring an IGA to implement the US Foreign Account Tax Compliance Act (FATCA) into force. The announcement states that these jurisdictions will no longer be treated as having an IGA in effect, but clarifies that a jurisdiction will not cease to be treated as having an IGA in effect until at least 60 days after the jurisdiction’s status on the IGA list is updated.

Foreign financial institutions (FFIs) in jurisdictions that cease to be considered as having an IGA in effect will not be able to rely on the IGA and, unless they qualify for an exception under the FATCA regulations, will have to enter into FFI agreements to comply with their FATCA obligations, including reporting information to the IRS and withholding.

The treasury department may evaluate whether a jurisdiction will continue to be treated as having an IGA in force based on two factors:

  • Whether the jurisdiction has submitted, by 31 December 2016, a detailed explanation of why the IGA is not yet in force and a plan (including dates) intended to be followed to sign the IGA and/or bring it into force; and
  • Whether the explanation and plan provided, along with the jurisdiction’s past conduct with regard to IGA discussions, indicate a resolve to bring the IGA into force. 
Source: Deloitte