On the same day, the US Treasury Department issued a joint statement with the governments of France, Germany, Italy, Spain and the United Kingdom that set out a framework for an intergovernmental approach to international tax compliance generally, and implementing FATCA in particular.
The proposed FATCA regulations are extremely lengthy (running to almost 400 pages), and some matters remain reserved for further guidance; however, there appear to be some welcome clarifications and simplifications. This article highlights a few of those clarifications but does not attempt to cover all of them or to cover any of them in significant detail.
To start, the proposed FATCA regulations increase the value of accounts subject to an "enhanced review" to $1m from $500,000, which is a welcome modification.
Although the latest version of the regulations eliminate the stricter "private banking relationship" set out in a prior notice, they do require a "relationship manager’s" actual knowledge to be part of the due diligence process for accounts subject to enhanced review.
Trusts
The latest FATCA regulations also address trusts in some detail for the first time.
Briefly, the rules appear to require trusts with US owners to be classified as "grantor" or "non-grantor" (broadly, whether someone is treated as "owning" all or a portion of the trust assets for US tax purposes), set out rules for determining when a US person will be treated as having a beneficial interest in a trust, and contain attribution and constructive ownership rules to determine whether a US grantor or beneficiary of a foreign trust is a substantial US owner of a foreign entity.
Trusts with financial assets appear to be foreign financial institutions (FFIs) and there does not seem to be an exception for "small family trusts" that had previously been mentioned.
Charitable organisations
The proposed FATCA regulations also contain some welcome clarifications with respect to charitable organisations.
Briefly, foreign charities that either have been recognised by the IRS as US exempt organisations or obtain an opinion of US counsel that they are equivalent to a US exempt organisation do not appear to be either FFIs or non-financial foreign entities (NFFEs).
Further, even if a foreign charity cannot meet this test, it may be a "deemed-compliant" FFI if it can provide a letter from local counsel that it meets certain requirements designed to ensure it has truly charitable purposes.
In either case, the charity will not have to enter into an FFI agreement, but must certify its status and provide copies of the relevant opinions of counsel to avoid withholding.
Joint statement
The joint statement outlining how the governments of France, Germany, Italy, Spain and the UK intend to work together on ensuring tax compliance, meanwhile, is extremely interesting.
Presumably arising from the multilateral negotiations that have occurred regarding FATCA, the parties to the joint statement agree, among other things that:
- each non-US jurisdiction will implement laws requiring FFIs in that country to collect and transmit the required information to the local government, which will transmit it to the United States automatically, and
- the US will commit to reciprocity by automatically collecting and reporting similar information to the other countries, with respect to accounts held by residents of those countries in the United States.
If the steps in the joint statement are implemented, they could be the first steps towards a coordinated, multi-jurisdictional approach to tackling global tax avoidance.
More immediately, a primary benefit of the implementation of the framework contemplated by this joint statement is that FFI agreement and reporting requirements under FATCA will not apply to FFIs in these jurisdictions, provided they properly report to the authorities in that jurisdiction.
Kristin Konschnik is a partner in the London office of Withers, the international law firm
