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Saturday, February 16, 2013

Public Briefing on FATCA

On February 12, 2013 the OECD held a Public Briefing on FATCA at their Conference Center in the 16th district of Paris. After initially being refused entry because "priority was given to government and business," the organizers informed me Monday afternoon that they did indeed have space due to unexpected cancellations and they were looking forward to seeing me there.

It was a fascinating look at the nuts and bolts of FATCA negotiations and implementation. In addition to discussions about data exchange and the finer points of the final regulations, there were some important messages being passed between the US and the government and industry representatives in the room. I heard the words "burden relief" and "alignment" and "working with industry" many times over the course of the meeting. There seemed to be a need to assure industry that they have a say in the negotiation of the IGAs in each country and in the implementation process.

The OECD by simply hosting the event gave public support to the U.S. effort and they are clearly seeking to align their own initiatives with FATCA. For example, the OECD's position is that FATCA and TRACE are complimentary and they are looking for an alignment of the data models and data exchange formats that will be developed for both systems. That said, TRACE and FATCA have two different objectives: The first addresses source country taxation. The latter is about a "Common reporting standard for residence countries (building on FATCA IGAs; cf art 6.3 of the FATCA Model 1 IGA)" . Nonetheless, the goal is to have aligned systems.

As for the message to other governments, that was was the object of the very first U.S. presentation by Danielle Rolfes, International Tax Counsel, U.S. Treasury:

Ms. Rolfes started with a progress report on the IGAs. "Much was promised last time," she said. Since the last meeting four IGAs have been signed and they have initialed agreements with Spain, Norway and Italy. They have also initialed a Model 2 agreement with Switzerland

In answer to the question: Why is it taking so long to get these agreements signed? She had several explanations. Some of it had to do with the writing of the final regulations. Hundreds of comments on FATCA had to be taken into account and Treasury had to allocate resources to that task. In addition, the model agreements evolved as countries signed up and those evolutions had an impact as well in the writing of the final regs.

As for the IGAs, she said, most of the time needed to work out the IGAs has to do with Annexe 2 and the list of specific products exempted. It took time for Treasury to understand what those products were and to come to an agreement. She assured the attendees that this process should speed up now that the final regulations are out. Treasury tried in turn , she said, to write the final regulations to fit the vast majority of cases around the world.

As for the assertion that the delays in signing the IGA's are due to a lack of enthusiasm, well, she met that one head on. The problem is not at all about other governments being reticent about FATCA, she said, it's just a very time-consuming process. The implication was, of course, that there are other countries lined up to sign once the details are worked out. Perhaps this is true but they did not give any more information about where Treasury is in the process with those other countries who were never named.

The final regulations are out. Now what? Can they meet the deadlines? Ms. Rolfes said that she was reasonably optimistic, "if we can get your help." On the U.S. side Treasury has added more staff and is now able to allocate more resources to the IGAs.

The next speaker was Mike Danilack, Deputy Commissioner International at the IRS. He began his talk with a joke: Policy makers have great ideas, he said. We have to implement them. In addition, an IGA is not the end of the work for a country. Here are some of the things that still need to be done:

Universal schema: The electronic format for FATCA information has benefitted from the TRACE project. IRS is close to having a schema that all countries are happy with. That is for the capture of data under the Model 2 agreements. In the government to government model (Model 1) it is possible to use the same schema but governments still have to work out how they will gather information from their domestic financial institutions.

Bulk Data transmission: These transmission needs to happen on a schedule and the exchange must be both secure and efficient. Right now no system exists for governments to exchange this kind of information in bulk and on a schedule. The question of what standard/system will be used is still outstanding.

Registration: The FATCA model says an FI will make itself known to the IRS. How? Using an online web portal. IRS must also develop a unique numbering system for financial entities all around the world. the question is: Is this just for the US or do they develop a system that can be used worldwide?

All of the above will require Competent Authority government to govenrment discussions.

The floor was then given to the country representatives. These were all countries that have either already signed IGAs or are in the process of signing them:   UK, Italy, The Netherlands and Germany. The U.S. chose well - all were enthusiastic especially the UK and The Netherlands.

UK: The representative opened with a surprising comment. She said that the final regulations had a better deal than the IGA the UK signed. This, she said, needs to be reconciled.

Germany: No agreement so far. This is not due to a problem with negotiations, they had a heavy workload as well. FATCA is something new and all government departments need to have a look and there are issues that come up have to be dealt with first. But they are now in the final stages to have the agreement initialed. When? Soon. He stressed however that implementation will take time. Not sure about the timeline and and can't promise to meet the U.S. government's goals.

Italy: They are somewhere between the German and UK positions but they are now ready to initial the IGA. They had to translate the agreement into Italian. The translated text will then have to be validated with the US and their version compared to the UK one. After that they will sign and ratify. He stressed the need to work with local business community concerning implementation.

Netherlands: Very close to initialing an IGA in the coming weeks. However, they will need approval from parliament. "Looking forward to the champagne," she said when the work is done and the agreement is signed. She also mentioned that they are working closely with industry on implementation.

The last presentation was by Jesse Eggert, Associate International Tax Counsel, U.S. Treasury. He described the experience with FATCA as "An interesting ride so far,"

The statute was enacted in 2010 and in less than 3 years, he said, we've taken one of the more complicated ideas of the U.S. congress and transformed it into a set of comprehensive regulations. There are still questions. He described the goal now as getting, "The right amount of information about the right people."

Most common comments they received were about the burden of identifying customers and on the conflicts with domestic law. These have been solved, he said, in the IGAs. The U.S. can't change other country's laws but bi-lateral agreements can be used to resolve conflicts.

He then discussed some of the particulars of the final regulations and the IGAs. For our purposes, the two I thought most interesting were:

Local Bank Category: The final regs say that an institution does not have to report on residents even if they are US persons if they fall into a "local bank category" (98% of their business is local). This is designed to prevent discrimination against local account holders.

Ability to find US Accounts: There was concern in industry that there would be audits and that perfection would be required when it came to detecting US accounts. That, he said, is not the US' intention - all they expect are good procedures and processes. Errors will happen. It's OK that not all US accounts will always turn up. What they don't want to see are major systemic failures.

The final fifteen minutes were devoted to questions gathered during morning meetings and others submitted in advance by attendees. Here are two I thought were noteworthy:

The final regs seem to provide for more burden relief than the IGAs. Why?

Definitions are sometimes more generous in the final regulations. For example, new accounts treated as existing accounts in some cases.

Treasury takes the pont of view that if there is a more favorable definition in the final regulations then in the IGA, countries can choose to use the more favorable terms in the regs. Overall the final regs are a good interpretation of the IGA provisions and Ms. Rolfes said that they aren't really any conflicts. Nonetheless, between the regulations and the IGAs countries can "cherry pick" definitions provided they are not contrary to the intent of FATCA.

Question about the relationship between the IGAs and the existing tax treaties. the IGAs are built on the existing system of information exchange and double tax treaties. Can a country without these things still enter into an IGA?

Jesse Eggert said "yes.". Treasury prefers that they enter into an agreement first but if they can't, the IGA is a stand-alone agreement. Not possible to have reciprocity under such an agreement but local FI's will still be able to benefit.

So there you have it. One last comment. Only once in the entire 2.5 hours was any mention made of the impact on people (those pesky "US Persons"). Other than that, discrimination, access to basic banking services, privacy issues and so on were not discussed. Though it was a public meeting attendance was tightly controlled. When I asked the OECD contact if any other NGO's were going to be there, she replied, "Not to my knowledge." From what I could see, the overwhelming majority of the participants were industry and government representatives though I did see at least one journalist.

And that is a shame unless, of course, we limit the definition of "public" to mean bankers, tax policy makers, consulting companies and government bureaucrats. It is my own bias speaking here but I do think the discussion would have been greatly enhanced by the presence of more citizen advocacy groups. I would be very interested in knowing if any did apply and were turned away. If not, then all I can say is that they missed a great opportunity.

This blog has more notes from the conference and is worth a look.  Notes from the OECD Meeting - TRACE and FATCA.  Many thanks to Just Me for the link.


Rosy the Riveter said...

My God Victoria! You're to be commended for attending this thing and writing us such a detailed report ! I guess one answer is simply that NO broad publicity was given to this event. Had I known and work schedule permitting, I might have joined you there! Secondly, it's a bit strange that the TAS lady Nina wasn't there. And finally, the reciprocity thing is not clear. I personally, as I said in a previous post, don't think the recirpocity thing is LOGISTICALLY in our interest for the following reasons: 1) anybody with an account in the US containing just US-source cash (inheritance, SS payments, whatever) will now be, pardon the expression, screwed on both sides of the oceans. Secondly, reciprocity requires banks to have the proper software and personnel - something that smaller local banks may have trouble implementing. And finally, and STRATEGICALLY, the harder it is for US banks of all dimensions to reciprocate with info to foreign countries on US accounts of US persons living abroad, the more likely it is that FATCA will crumble under its own weight. Signatory countries will be getting the raw end of a one-way deal - which is what may make them ultimately give up on applying FATCA thoroughly. Anyhow, thanks Victoria! You've rendered us one great service - once again !

Ellen Lebelle said...

So, our accounts in the countries in which we reside will be considered local and not foreign! Great news and one of our points during OAW!
Thanks for going, thanks for sharing!

Tim said...

Where was France? Has Hollande gotten cold feet?

When thinking about FATCA I got a certain degree of inspiration from watching this movie called the End of Maggie Thatcher on youtube. The assembled government representatives sound a lot like Thatcher's aides in the final days just before she was thrown from office denying that anything was going "wrong".

Tim said...

Remember 25% of the OECD's budget comes from the US. They are not going to bite the hand that feeds.

Victoria FERAUGE said...

@Rosy, You should see my notes! :-) I had my Ipad and I was typing away the entire time. I distilled them and sent a full report to ACA who will circulate them. And then I distilled even further for the posts here and at Isaac Brock. I agree - there is much that is still not clear.

@Ellen, I was so intrigued by what Eggert said that I asked someone (Prof. Christians) if it really was int he final regs and she said "yes." But in order for a bank to be "local" 98% of its business has to be local. How many entities will qualify? No clue.

@Time I was wondering the same thing. Where was France? I've been hearing how enthusiastic the French are about FATCA to the extent they might want to implement their own version. But they weren't there. A mystery.

Anonymous said...

Wonderful for us that you were able and willing to go. Fantastic notes. Thank you so much.

Had a few thoughts - if our 'local' banks (prob mostly only credit unions here in Canada) are 'local' for FATCA purposes, where they then why can't they be deemed 'local' for the FBAR too?

Not surprised by the total lack of mention of the effect on, or the lack of any concern for the consequences for individuals - which of course includes all those already currently 'compliant', and all those NON-US spouses and family, and NON-US business partners, etc. - who are associated with an account where a US person is involved.

And, I though that Germany was adamant about either receiving true reciprocity - or the deal would be off.

Was anyone from Canada there?

Truly a depressing thing that the full weight of the US, the OECD, the banks and other big rich institutions, and the compliance industrial complex have a voice and a stage, and are arrayed against us, but individuals have almost no recourse.

Confirms for me what the world is truly made of.


Em said...

That was a very well-written report, Victoria, but I was expecting it would be. I don't know how you managed to type so much into your I-pad while holding your nose but you did it. Thank you for helping us get a clearer picture of the mindset of those who won't even try to understand the effect of FATCA on real people.

Anonymous said...

So it seems most bankers and governments agree people are property of the state, and no mater where they live, the state gets a cut of the productivity of their property (citizens).

I'm not ever going to become a citizen of any country again, being stateless is the way to go (at least for me).

I think by the end of this year I'll have residency in a total of four countries and I'll pay taxes when I'm in each country but non of them will own me.

Anonymous said...

Victoria - Great that you were there to watch our government sell overseas Americans down the river of bureaucratic nightmares to the applause and delight of thesse fiscal cockroaches who clearly have no life whatsoever of a productive nature.

Having now properly vented, do we have any indication anywhere of how much the IRS is spending on implement FrankenFATCA? Is this really worth anyone's time, effort, and money? How much will all of the other revenue services going to pony up to enforce the IRS' demands? Is there an agreement for the US government to reimburse these guys any or all of their costs of implication and enforcement? Where is that coming from?

Wouldn't it be something if the US government actually went to this effort to identify illegal immigrants and the companies inside the USA who hire them? After all, according to the Federal Reserve these people send over $150 billion in cash outside of the country every year. A mere 1% tax on that activity would more than double the revenue to the Treasury than this global cockamamie scheme - and wouldn't put Americans overseas at a competitive disadvantage at the same time.

With a government like ours, who needs enemies?

Just me said...

So, now we see the FATCA Local Loophole for Americans Abroad. FLLAA :) (Have to come up with a better one that that!)

"Local Bank Category: The final regs say that an institution does not have to report on residents even if they are US persons if they fall into a “local bank category” (98% of their business is local). This is designed to prevent discrimination against local account holders."

Now, heaven help the AA who happens to be in a local bank when its percentage gets tipped below the 98% threshold. There is always some technical threshold isn't there just so at a later date, and IRS banking regulator has a stick to hammer them! "Shame on you! You are now at 97%, and so are no longer have the FATCA local exclusion!"

That said, they said, they were not looking for perfection, and I think that is the understatement of the year! With such complexity how could their EVER be perfection? And, more importantly, how could the IRS ever ever hire enough Contract administers to monitor for 100& compliance? Won't happen.

Besides look how great they did with the AML rules that HBSC just ignored until finally caught out, and not by the IRS or regulatory authorities!

I do believe a lot of banks will play the audit lottery. They will do they best the can, or even ignore the untenable without worrying about it too much. They will just take their "fines" lumps when if they ever ever get audited. The BIG guys are too big to be prosecuted anyway, so they will use that to their advantage.

Ian J Sutherland said...

I heard today that one thing that came out of the meting was that the IRS did not expect FFI's in IGA countries to have to register with the IRS, but rather with their local tax authority no GIIN. This changes the practicalities significantly!

As a result I heard that there are rumours about further delays, delays that would affect the FATCA business case and doubtless cause a stir back in the US.

Lastly the French silence may have something to do with the rumour that Paris is about to announce FFATCA ie French FATCA. I wonder?

Certainly these are (relatively) interesting times.

No to FATCA said...

It's a shame that everybody is just doing what the US want them to do. FATCA is only a pain in the *ss and gives the US more confidential information about NON-US people.

Why are they so positive about FATCA, and why they are not involving the public? For the last one I think I know the answer already... Fear!

In the US I bet that 90% of all inhabitants never heard about FATCA. It is such a shame! I hope Canada will stay strong!

Swedish Citizen said...

Was Sweden at the meeting? What were the names of the participants?