May 31, 2013: Germany FATCA Intergovernmental Agreement
Foreign Account Tax Compliance Act (FATCA)
Germany and the United States sign intergovernmental agreement and memorandum of understanding
On May 31, 2013, Germany and the United States signed an Intergovernmental Agreement (“IGA”) to improve international tax compliance with respect to FATCA. In addition to the IGA and similar to the IGA release for Norway, Germany entered into a separate memorandum of understanding (“MOU’) to further clarify language in the IGA. The agreement is substantially similar to other Model 1 agreements signed in Europe by the United Kingdom, Ireland, Denmark, and Norway and includes reciprocal reporting obligations for the United States. However, the IGA seems to be based on the recently released Model 1A Reciprocal IGA that is closer to the Norway IGA. Similar to the Irish, Danish, Mexican, and Norwegian IGAs, the U.S. is committing to creating rules to require the collection and reporting of the German taxpayer identification number (“TIN”) as opposed to the date of birth for U.K. residents.
As in the Norwegian IGA which incorporated many of the new provisions from the Model 1A IGA, the German IGA includes the addition of two paragraphs in Article 4 that outline how FATCA will apply to foreign financial institutions (FFIs) in Germany. Given the delays in signing the IGA and the timeline changes in the final regulations, paragraph six in Article 4 helps coordinate the timing of FATCA; essentially coordinating the reporting requirements of Germany with the latest requirements applicable to FFIs under the final regulations. Paragraph six also states that the U.S. does not have to obtain and reciprocate information to Germany until Germany is ready to exchange the reporting information under the agreement. Additionally, because of changes in certain definitions in the final regulations, paragraph seven allows Germany to use the new definitions in lieu of the definitions in Article 1 or the annexes; so long as such use does not “frustrate” the purpose of the IGA. The good news for other countries that have already signed an IGA with the U.S. is that the most favored nation clause in those agreements will apply for these provisions allowing them to benefit from the changes in the Norway and Germany IGAs.
Like the Norway IGA, the Germany IGA includes an MOU released alongside it. Unlike the changes to the substantive terms to the IGA mentioned above, the MOU will not apply to other IGA jurisdictions under the favored nations clause of the IGA and will only apply if the jurisdictions enter into similar understandings. The MOU clarifies four aspects of the Germany IGA:
- Germany intends to require Reporting German Financial Institutions to use a Global Intermediary Identification Number (“GIIN”) as its identification number which Germany will use in its exchange of information to the U.S.;
- The rules under the U.S. and Germany Avoidance of Double Taxation agreement apply to information exchanged under IGA;
- Germany intends for Reporting German Financial Institutions to comply with the registration requirements applicable to Financial Institutions in Partner Jurisdictions by registering and obtaining a GIIN from the IRS; and
- With respect to when the agreement enters into force pursuant to article 10 paragraph 1, the U.S. acknowledges in the MOU that Germany intends to implement FATCA enabling legislation by September 30, 2015 (with a possible year extension subject to certain assurances) and that the U.S. agrees to treat German FIs as FATCA compliant from January 1, 2014 through September 30, 2015 (subject to the year extension).
Annex II of the agreement identifies the Federal Republic of Germany (including the Finance Agency), agencies within the meaning of the German Financial Market Stabilization Fund Act, and other wholly owned legal entities that are not acting as commercial banks and are tax exempt under the Corporate Income Tax Act), the Central Bank of Germany, certain International Organizations in Germany, and certain German pension funds as exempt beneficial owners. The category of deemed-compliant entities under Annex II includes certain Small Financial Institutions with a German Client Base, and certain Collective Investment Vehicles regulated under the laws of Germany. Lastly, Annex II declares certain accounts or products as exempt (both retirement and non-retirement).
Germany is the eighth country to sign an IGA with the U.S. and further bolsters the U.S.’s position to solve the global FATCA compliance problem using the IGA methodology. Although the signing of IGAs has significantly slowed down after a brief push late last year, this latest signing is hopefully an indication that additional IGAs are ready to be concluded in the near-term.
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