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FFIs can report FATCA-like information directly to the revenue agencies of their home countries. These revenue agencies will then share information regarding US account holders directly with the IRS. There are two versions of the Model 1 IGA: reciprocal and non-reciprocal. Under the reciprocal version, the US agrees to share information collected in the US on non-US account holders with the other country. Under the non-reciprocal version, the US does not agree to share information. For the US to enter a reciprocal IGA, the non-US country must have ‘protections and practices’ that the US Treasury and the IRS have determined to be adequate to ensure that the exchanged information remains confidential and is used solely for tax purposes. It is unclear what criteria the US Treasury and the IRS will actually use to judge which countries’ ‘protections and practices’ meet this standard. Under the Model 2 IGA, FFIs request permission from account holders to share information with the IRS. If account holders refuse, FFIs can report information on all of their non-consenting account holders in aggregate to the IRS. If the IRS requests extra information from a particular FFI, the FFI would report that detail to its home country revenue agency, which would then provide it to the IRS. FFIs in jurisdictions that have signed Model 1 IGAs should comply with the IGA in effect in their jurisdictions. Note, however, that in certain instances Model 1 IGAs give FFIs the option to comply with the requirements set forth in the regulations, as opposed to the IGA. FFIs in jurisdictions that sign Model 2 IGAs will be expected to comply with the regulations, except to the extent provided in their IGAs. As of February 2013, the US Treasury Department reports that the UK, Denmark, Mexico and Ireland have entered IGAs with the US.4

Implementation timeline The final FATCA regulations contain various implementation timelines and phase-ins. Below are a few of the most significant:


After two years of negotiations, on 19 November 2012 the Agreement to Improve International Tax Compliance and to Implement FATCA was executed between the US Department of the Treasury and the Mexican Ministry of Finance. As of January 2013, Mexico and the US have committed to coordinate efforts to collect financial information and exchange it automatically, aiming to improve international tax compliance. The US Treasury Department will collect information on certain


financial accounts and products held by Mexican residents in the US. Financial institutions will exchange that information with the Mexican Ministry of Finance. In reciprocity, the Mexican authority will collect and provide equivalent information about US residents with accounts in Mexico. As a result, both governments expect to increase supervision and obtain higher levels of tax compliance. According to the US-Mexico

FATCA Agreement, the US will collect and exchange the following information from the holders of ‘Mexican reportable accounts’: • name, address and tax identification number (or date of birth)

• account number and name of the US financial institution where the account is held

• interest paid on depository accounts

• US-source dividends paid or credited to Mexican reportable accounts; and

• other US-source income paid or credited to such accounts (as provided by the agreement and the US Internal Revenue Code).

It is expected that information collected in 2013 by both governments on individuals holding accounts abroad will be exchanged in 2014 and 2015. For subsequent years, the information will be exchanged annually. The Mexican tax authorities may, among other purposes, use the information provided to audit Mexican individuals and residents that hold accounts in the US in order

to verify compliance with their tax obligations. Both governments are expected

to continue working on the contents of an ancillary agreement that will establish further procedures for the automatic exchange of information, as well as the rules that will streamline the compliance and enforcement of the US-Mexico FATCA Agreement. The full content of the US-Mexico Agreement can be found at www. tax-policy/treaties/documents/ FATCA-Agreement- Mexico-11-19-2012.pdf

Veronica Yepez Reyna TEP is Sales Director of Amicorp Services Ltd (San Diego) and Geralda Buckley TEP is Managing Director of Amicorp Switzerland AG

APRIL 2013 73

• 15 July 2013: the IRS portal allowing FFIs to enter FFI agreements will be open.

• 25 October 2013: the final day an FFI can enter an FFI agreement that will ensure that the FFI is included on a list of participating FFIs published by the IRS before the start of FATCA withholding.

• 1 January 2014: withholding begins. All accounts maintained before this date are pre-existing accounts.

• 31 March 2015: due date for the first information reports for the 2013 and 2014 calendar years.

• 31 December 2015: deadline to document account holders and payees that are not prima facie FFIs.

• 1 January 2017: withholding begins on gross proceeds from sales or dispositions of property and on foreign passthru payments.


The final regulations provide much-needed guidance concerning the implementation of FATCA. It seems clear that non-grantor trusts should be tested for FFI status under the ‘investment entity’ category, pending further guidance. Unfortunately, the final regulations also leave uncertainty surrounding the application of FATCA to many non-US trusts by providing only two examples that address vastly different scenarios. The gulf between these two examples leaves room for differing interpretations of whether trusts that are not addressed specifically in the examples qualify as FFIs. Nevertheless, prudence would dictate that unless a trust with US investments5

has no

third-party professional involvement or holds relatively few financial assets, it should prepare to either: (1) enter an FFI agreement and comply with detailed IRS reporting and due diligence requirements; or

(2) obtain owner-documented FFI status, preferably with a substitute letter to protect the privacy of its non-US beneficiaries.

In either case, life is soon to become more complicated for the trustees and beneficiaries of these non-US trusts.

4 IGAs between the US and Spain, Japan, Switzerland and Norway are reportedly in late- stage negotiations.

5 The final regulations reserved on the definition of ‘passthru payments’, but it is possible that such payments could include payments arising from non-US sources as specified in prior IRS guidance. If passthru payments ultimately include non-US source income, then limiting the trust’s portfolio to non- US investments may not solve the trust’s FATCA withholding tax problem.

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