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June 11, 2013: Japan FATCA Intergovernmental Agreement

Foreign Account Tax Compliance Act (FATCA)


Japan and the United States sign updated Model 2 Intergovernmental Agreement

Japan and the United States have signed a Model 2 Intergovernmental Agreement (“IGA”) to improve international tax compliance with respect to FATCA. Japan was the second country to sign a Model 2 IGA type agreement (Switzerland was the first) and brings the total number of signed IGAs to nine. Unlike other IGAs signed recently, the Japan Model 2 IGA does not include a Memorandum of Understanding (“MOU”) to clarify the IGA. According to its terms, the agreement starts implementation on June 11, 2013. 

The Japan Model 2 IGA provides for reporting directly to the IRS. This is different from the Model 1 IGAs, which require reporting to the local country’s tax authority which will then reports to the IRS. Additionally, unlike the Model 1 IGAs, the Model 2 IGAs do not include reciprocal reporting responsibility for the U.S. However, the IGA does state that the U.S. will continue its current reciprocal reporting responsibilities under the Double Taxation Convention currently in force with respect to Japanese residents holding financial account in U.S. financial institutions. 

As noted in the final regulations and adopted in the Japan Model 2 IGA, FFIs within the Model 2 jurisdiction will be required and directed by the local government to register as participating FFIs with the U.S. by January 1, 2014 (unless exempted or certified deemed-compliant). The rules of the FFI Agreement will generally apply to such participating FFIs, unless modified by the rules outlined in the Model 2 IGA. Unlike the Swiss Model 2 IGA, participating FFIs under the Japan Model 2 IGA do not have the option to apply the due diligence rules in the Treasury Regulations; however, Japan may elect to use definitions from the Treasury Regulations if the use does not “frustrate” the purposes of the IGA. 

Similar to the other IGAs, the Annex II includes a list of entities treated as exempt beneficial owners, including Japanese governmental organizations, the central bank (Bank of Japan and its wholly owned subsidiaries), international organizations, certain public institutions, and certain pension funds, deemed-compliant FFI categories for small financial institutions with a local client base, certain collective investment vehicles, and a list of exempt accounts. 

This latest agreement further bolsters the U.S.’s position to address the global FATCA compliance process using the IGA methodology. Although the signing of IGAs has significantly slowed down after a brief push late last year, the latest signings along with the release of new Model IGAs are hopefully indicators that additional IGAs are ready to be concluded in the near-term. 

Full article and U.S. Department of the Treasury’s announcement are available for download. For more information please contact a FATCA Leader or click here.

As used in this document, “Deloitte” means Deloitte Tax LLP, a subsidiary of Deloitte LLP. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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