France Signs On To FATCA Compliance – Financial Institutions Still Not Prepared

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France just hopped on the FATCA express November 14, becoming the 10th nation to sign an Intergovernmental Agreement (IGA) with the United States. FATCA, as the “Foreign Account Tax Compliance Act” is commonly called, was enacted in 2010, but has been implemented in stages. It has seen several delays and while many hold hope it will never be finally implemented, all indications are that FATCA’s momentum is unstoppable.

Generally, FATCA requires foreign (non-US) financial institutions (FFI) to sign an agreement with the US government to report information about accounts held by US persons or accounts held by foreign entities in which US persons have a substantial interest. If the FFI does not implement the agreement and become FATCA compliant, it will suffer a 30% withholding tax on all payments from US-sources. As a result, the noncompliant FFI will effectively be barred from any profitable US investment opportunity.

IGA’s are critical to help FFIs comply with the information reporting and withholding tax provisions of FATCA. An IGA addresses situations when the laws of a foreign country could possibly prevent a foreign financial institution from complying with the terms of the FFI agreement. For instance, by complying with FATCA’s requirements to provide customer information to the Internal Revenue Service (IRS), the financial institution could be violating local data privacy laws.

France has signed a so-called Model 1 IGA pursuant to which French FFIs will report information about US account holders directly to the government of France. The French government will then send that information to the Internal Revenue Service. In return, the IRS will provide similar information to the French government about French citizens or residents who are account holders at US financial institutions. You can read the IGA between the United States and France here.

France was very active in helping develop model IGA’s along with 5 other countries (Germany, Italy, Spain, the UK and the USA), all joined together to create an intergovernmental approach toward improving international tax compliance. Read the Joint Statement issued by the 6 countries here. Under the IGA signed yesterday, the information will be exchanged annually on an automatic basis.

Financial Institutions Still Not Prepared

Despite the continued rollout of FATCA, a survey completed last month by NICE Actimize shows that most offshore institutions are still unprepared for it. Of the 100 institutions surveyed, 55% said their understanding of FATCA was “average” to “poor.” The largest hurdles cited included the lack of clarity around regulatory requirements, scarcity of FATCA expertise, operational impact and data issues. The survey identified the top three FATCA obstacles facing financial institutions as follows: account identification, compliance timeliness and multi-jurisdictional conflicts. Fewer than 5% of the institutions surveyed felt their compliance implementation efforts were complete or nearly complete. Many financial institutions appear to be adhering to a “wait and see” approach before making huge investments into their FATCA compliance strategies.

In accordance with Circular 230 Disclosure

This article was contributed by Virginia La Torre Jeker, J.D., a US tax attorney in Dubai, UAE. It (or, a version of it) was originally posted on her US tax blog.

Virginia La Torre Jeker J.D., has been a member of the New York Bar since 1984 and is also admitted to practice before the United States Tax Court. She has 30 years of experience specializing in US and international tax planning as well as international commercial transactions. She has been based in Dubai since 2001; prior to that time she worked in Hong Kong for 15 years as a US tax consultant for international law firms, major banks (including HSBC) international accounting firms (Deloitte) and trust companies. Early in her career she worked in New York with the top-tier international law firm, Willkie Farr & Gallagher.

Virginia is regularly asked to speak at numerous conferences and seminars for various institutes and commercial organizations; publishes a vast array of scholarly works in her area of expertise, been interviewed by CNN and is regularly quoted (or has her articles featured) in local and international publications. She was recently appointed to the Professional Tax Advisory Council, American Citizens Abroad, Geneva, Switzerland. She was a guest lecturer at the University of Hong Kong, LL.M Program (Law Department) and served as an adjunct Business Law professor at the American University of Dubai and at the American University of Sharjah where she also taught the legal / ethical aspects of internet law and internet based transactions.


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