1) Intergovernmental Agreements with the IRS
2) Direct Agreement with IRS
Governments can elect to enter a FATCA Partner Agreement
with the IRS. These Intergovernmental Agreements (IGAs)
will allow the FFIs of that country to comply with both
FATCA and the local laws. There are two Models that IGAs
can follow:
The second option for FFIs to become compliant is for the
FFI to enter a signed agreement directly with the IRS to
become a participating FFI. In this option the Government
of the participating countries has very little role to play in
compliance. There are far more disadvantages to this option
compared to the IGAs and many participating countries
have not opted for this method. Each FFI individually will
be held accountable for compliance to the laws of both the
local authorities and IRS. There will be greater risks of noncompliance within the country and this can severely harm the
reputation of the Government and reduce foreign investment
into that country. There is no protection for clients as their
information can be released to the IRS without Government
intervention and the protection of the local laws.
Model 1
The Model 1 Agreement will place the major responsibility
with the respective Government authorities to report to
the IRS and ensure that there is compliance with FATCA
among its participating FFIs. There are many advantages
to the Model 1 Agreement and it is the most preferred
option among all participating countries. Model 1 reduces
the burden and costs of the local financial institutions to
comply with FATCA as these institutions will continue to
Where there are customers of the FFI who do not participate or refuse
to provide the required documentation to identify their status as a US or
non-US person, the participating FFI will also have to withhold 30% tax
on all US source income of those customers.
report to their local tax authorities and regulators. There
will also be no breaches ΡΌ