A report published by the China Post in Taiwan on Sunday, hinted that another six-month delay may be likely in implementing the Foreign Account Tax Compliance Act (“FATCA”). If the report is correct, this would be the third delay in rolling out what has been described by many as the most over-reaching and egregious US legislation to come down the pike. In October 2012 and again in July of 2013, the US announced six-month delays in implementing FATCA due to the practical difficulties in setting up the measures required to have foreign financial institutions around the world reporting about their United States customers.

If the latest report is true, it would be the third time that the US has delayed implementing FATCA. Perhaps, third time, the charm?

IGA’s: Critical FATCA Ingredient

In the China Post Report, unidentified Taiwanese finance officials stated that even though Taiwan “is preparing to sign” a FATCA agreement with the US, it was “likely” that the scheduled 1 July implementation date “would be postponed”. The report suggested that the delay in FATCA’s roll out may be due to the number of pending intergovernmental agreements (IGAs) between the US and other countries. To put it bluntly, without these IGA’s, FATCA may simply be unworkable. Generally speaking, the IGA is a critical component to making FATCA “work.” This is so because having an IGA in place obtains greater clarity for the foreign financial institution (FFI) as to its duties and prevents violations by the FFI of local law or contractual obligations in meeting its FATCA reporting and other mandates. For example, if an FFI sent a customer’s account information directly to the Internal Revenue Service (IRS) this could be in violation of the country’s local data protection laws and could subject the financial institution to serious sanctions.

There are 2 types of IGA’s. Under a so-called Model 1 IGA, the FFI will report information on US account holders to the national tax or other relevant local authority, which in turn will provide that information to the US under an automatic exchange of information agreement. There are two varieties of Model 1 agreements. Model 1A is “reciprocal”—that is, each country exchanges information with the other; Model 1B is “nonreciprocal”—that is, only the foreign country provides information to the US. Model 1 agreements are in place with Cayman Islands, Costa Rica, Denmark, France, Germany, Guernsey, Ireland, Isle of Man, Italy, Jersey, Malta, Mexico, Netherlands, Norway, Spain, and the United Kingdom. Under a Model 2 IGA, the FFIs will provide information directly to the IRS to the extent the account holder consents or such reporting is otherwise permitted under local law. This reporting will be supplemented by the national tax authority agreeing to provide additional information upon request by the IRS with regard to non-consenting accounts. Model 2 agreements are in place with Bermuda, Japan and Switzerland.

The article went on to note that a delay in implementing FATCA could benefit Taiwan by giving it added leverage in the inevitable continued negotiations. However, it was also noted that April 25 remains the deadline for local financial institutions to register with the IRS to be FATCA compliant in order to ensure that the FFI is included on the first so-called “IRS FFI List”, scheduled for publication on June 2, 2014. On that date, the IRS will start to publish a monthly electronic “IRS FFI List“ to allow withholding agents to verify payees’ that are FATCA compliant and on whom the 30% FATCA withholding will not be mandated. Generally, if an institution is not on the list, any US source payments to it will be subject to the 30% FATCA withholding tax.

IRS officials were not immediately available for comment about this rumored third FATCA delay. According to the report, calls placed to its Washington DC media office were not answered. It will be interesting to hear if Robert Stack, Deputy Assistant Secretary for International Tax Affairs at the U.S. Department of the Treasury, weighs in!

US Treasury Reacts to FATCA Criticism

Robert Stack had a lot to say in September in defense of FATCA. Stack was trying to bust the “myths” surrounding FATCA and replace them with “facts”. Some of his FATCA “Facts” included the following –FATCA is not an “overreach of US law”, it will not cause Americans to be pariahs in the international financial community, it will not cause Americans living abroad to give up their citizenship due to burdens and liabilities; it is not overly costly and burdensome on financial institutions; its aim is not to use foreign banks as an extension of the IRS. The list goes on….

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