GLOBAL TAX TRANSPARENCY IS RISING
The Foreign Account Tax Compliance Act (“F.A.T.C.A.”) enacted in 2010 has been the driving force and the primary impetus for global tax transparency across borders. It has led to a ginormous administrative challenge for banks and other financial institutions as well as withholding agents in 2015. The O.E.C.D.’s recent release of the common reporting standard has led Treasury Department officials to view it as “the multilateralization of F.A.T.C.A.”
The U.S. has negotiated more than 100 Intergovernmental Agreements (“I.G.A.’s”) with nations across the globe to implement F.A.T.C.A and allow tax information to be shared between governments, which has set the stage for discussion for the onset of global exchange of tax information. More than 50 I.G.A.’s had already been signed and the remainder are treated as in effect and should be signed soon.
The I.G.A.’s represent a growing trend in global tax transparency, though implementation has posed a challenge to some nations. Implementing an I.G.A. may require changes to local legislation, such as approving actions that are required to be taken under the I.G.A. and thus essentially making F.A.T.C.A. a part of the law of that country. The Internal Revenue service (“I.R.S.”) said in December 2014 that jurisdictions with I.G.A.’s treated as agreed-in-substance will have more time to get the pacts signed if they can demonstrate “firm resolve” to finalize them, which is subject to a monthly review. Given the uncertainty of whether all agreed-in-substance I.G.A.’s will eventually be signed, and what the language of the signed I.G.A. will provide, 2015 will pose a growing concern for foreign financial institutions (“F.F.I.’s”), who are required to navigate multinational F.A.T.C.A. compliance, and for banks, who must put new procedures in place.