Beginning in 2017, the US will stop treating a country as if it has FATCA intergovernmental agreement (IGA) “in effect” if the country does not adequately prove that it has a plan to actually put the IGA agreement into effect, the IRS has announced.
Announcement 2016-27, released Friday, applies to 52 countries that have signed or that have “agreed in substance” to a Model 1 or Model 2 IGA with the US, but have not yet brought the IGA into force.
The US has been treating such countries as if they have an IGA in effect with the US. As a result, foreign financial institutions located in those jurisdictions are considered to comply with FATCA and to be exempt from withholding without the need to enter into an FFI agreement with the US. Countries in this category include Belgium, Hong Kong, the UAE, Israel, and Chile. The entire list of countries is available here.
According to the announcement, though, beginning January 1, 2017, Treasury will begin evaluating the countries and updating its IGA list to provide that some jurisdictions will no longer be treated as if they have an IGA in effect. To provide notice to foreign financial institutions, if a country is taken off the list it will not cease to be treated as having an IGA in effect until at least 60 days after the jurisdiction’s status on Treasury’s IGA list is updated.
To assist in the evaluation, countries with IGA that are not yet in force are asked to provide, by December 31, a detailed explanation of why the jurisdiction has not yet brought the IGA into force and a plan that outlines the steps the jurisdiction intends to follow to sign the IGA and/or bring the IGA into force, including expected dates for achieving each step.
Treasury will consider whether the jurisdiction demonstrates resolve to bring the IGA in force or not, and, if the US continues to allow the agreement to be treated “in effect,” the government will monitor whether the timelines are adhered to.
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