Globalisation of FATCA for multilateral exchange of tax information
Banking on Tax, Issue 11
In Banking on Tax #10, we highlighted the broadening of the U.S. Foreign Account Tax Compliance Act (FATCA). In particular, the OECD report released on 18 June 2013, which set out the steps needed to create a fairer and more transparent global tax system, referenced FATCA and the Model 1 Intergovernmental Agreements (IGAs) as providing a framework for multilateral automatic exchange of tax information (AEI). This multilateral AEI project is sometimes referred to as global FATCA or "GATCA".
In the G20 Leaders' Declaration from the meeting of 5-6 September 2013, the G20 stated full support for the OECD project, with an (ambitious) timetable as follows:
- February 2014 – expected presentation of a single global standard for multilateral AEI
- Mid-2014 – finalised technical requirements
- End of 2015 – multilateral AEI commencing among G20 members.
The OECD has been working on the multilateral AEI framework and consulting with OECD members as to its form and timing. In October 2013, the OECD held working group meetings with representatives from industry and government on a proposed model agreement for multilateral AEI.
There will be a number of differences between FATCA and GATCA to remove aspects of FATCA that are U.S. specific and to adopt aspects of other AEI arrangements (e.g. the EU Savings Directive) and anti-money laundering standards. These differences may affect definitions of financial institutions and financial accounts, limit the number of non-reporting entities, modify due diligence requirements and remove various concessions provided in FATCA.
Financial institutions in signatory countries will be required to identify all non-resident individuals, entities and non-resident controlling persons of non-financial entities, regardless of their country of residence, from a common starting date. The information to be reported will be similar to that required under FATCA.
While the project has broad support, given the number of issues and complexities in implementing FATCA, there is concern that the proposed timetable is too ambitious and that GATCA should have a start date at least 12 months after the start date of FATCA. In particular, there are a number of aspects of FATCA that have an expiry date or intended start date of 2016 or 2017, so those dates would provide an appropriate start date for GATCA.
It is intended that the OECD will present a final version of the model agreement to the G20 in February 2014. In addition, the OECD intends to release detailed guidance to ensure consistent implementation across jurisdictions. Once the model agreement and detailed guidance is made available, banks can assess the impact of GATCA and how current FATCA programs might be amended to address the requirements of GATCA. Australian banks with branches and subsidiaries in jurisdictions that do not have a Model 1 IGA may be more affected by GATCA, as those branches and subsidiaries will need to comply with GATCA requirements, which will be based on the Model 1 IGA.