Long-awaited document sheds light on compliance requirements The US Treasury has released proposed guidance for foreign financial institutions (FFIs) entering into agreements directly with the US Internal Revenue Service (IRS) under the Foreign Account Tax Compliance Act (Fatca). The long-awaited draft FFI agreement includes proposed guidance not only for FFIs reporting directly to the IRS, but also those reporting via the so-called model 2 intergovernmental agreement (IGA). The model 2 IGA sees FFIs reporting directly to the IRS when they are either legally allowed to do so in respect of local data privacy laws or they have the consent of the account holder. This reporting will also be supplemented by information exchange between governments with respect to non-consenting accounts. So far Switzerland is the only country to have entered into a model 2 agreement with the IRS. The draft FFI agreement's release is likely to be welcomed by the industry, which was left disappointed when the much-delayed final Fatca regulations were released in January this year with no mention of the FFI agreement. Prior to the final regulations being released, Yvonne Kunihira-Davidson, a London-based tax reporting and withholding specialist at law firm Burt, Staples & Maner, told Operational Risk & Regulation that the industry was hoping to see the agreement as soon as possible. "In an ideal world, the industry would like to see a draft FFI agreement alongside the final Fatca regulations, as this will allow FFIs to comment on it before it's finalised," she said. But the industry was left disappointed when the draft agreement didn't materialise and FFIs in jurisdictions without an IGA in place were unable to move forward on certain elements of their Fatca compliance programmes. Add to this the fact that still only nine IGAs have been signed to date, and the draft FFI agreement has been hotly anticipated. Nine jurisdictions have entered into IGAs with the IRS: Denmark, Germany, Ireland, Japan, Mexico, Norway, Spain, Switzerland and the UK. All these agreements (except the Swiss one) are model 1 IGAs, which focus on reciprocal data exchange with the IRS. In its statement announcing the release of the draft FFI agreement, the US Treasury said it has reached 16 IGAs in substance and "is engaged in related conversations with many more jurisdictions". In August 2012, the Treasury released a statement saying it was engaged with more than 50 jurisdictions in conversations relating to IGAs, yet only these nine have been signed to date. Question marks also remain around China's willingness to comply with Fatca. Updates to areas of due diligence, withholding and other reporting requirements have also been released by the Treasury....
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