The guillotine for FATCA IGAs agreed in substance?

4 August 2016

The US Internal Revenue Service (“IRS”) has published an announcement (2016-27) which aims to bring closure to the issue of countries that are still deemed to have Intergovernemtal Agreements (“IGA”) to implement the Foreign Account Tax Compliance Act (“FATCA”) agreed in substance.


This will potentially have a significant impact on Financial Institutions (“FI”) in a total of 43 jurisdictions that have yet to formally sign or implement their IGAs that are designed to allow information to be collected by the home jurisidiction and then passed to the IRS (“model 1”), namely:


Algeria; Angola; Anguilla; Antigua and Barbuda; Bahrain; Belgium; Cabo Verde; Cambodia; China; Costa Rica; Croatia; Curaçao; Dominica; Dominican Republic; Georgia; Greece; Greenland; Grenada; Guyana; Haiti; Indonesia; Israel; Kazakhstan; Malaysia; Montenegro; Montserrat; Panama; Peru; Philippines; Portugal; Saudi Arabia; Serbia; Seychelles; South Korea; St. Lucia; Thailand; Trinidad and Tobago; Tunisia; Turkey; Turkmenistan; Ukraine; United Arab Emirates; Uzbekistan


If the governments concerned are unable to conclude their respective IGAs by 31 December 2016, then the IRS may remove some or all of the above countries from the IGA list of IGA, meaning that FIs will be exposed to the full US regulations to implement FATCA, including:


  • entering into a formal FFI agreement with the IRS;

  • the withholding obligations of 30% in relation to the income and gross proceeds of US-source Fixed or Determinable, Annual or Periodic (“FDAP”) income, even though this may breach local law;

  • the requirement to report directly to the IRS, irrespective of the breach of local data privacy requirements; and

  • FIs being directly answerable to the IRS in relation to compliance.




The provision to allow an IGA that had been signed by a jurisdiction but yet to be implemented in local law was introduced by the IRS in Notice 2013-43. This was then extended in relation to an IGA being agreed in substance was introduced by the IRS in Notice 2014-38 to allow jurisdictions that “could demonstrate firm resolve to sign and IGA as soon as possible” to be treated as though an IGA was in effect. This helped resolve the backlog in concluding IGAs that was building up immediately before FATCA went live on 1 July 2014.


The original deadline of 30 November 2014 for countries to conclude the IGA was subsequently extended by Notice 2015-66. This provided that any financial account information that would be exchanged with the IRS by 30 September 2015 would instead be reportable 12 months later. This effectively gave countries a further year to conclude the IGAs.


What do the IRS expect?


In the latest announcement ( the IRS has confirmed that all of the 43 jurisdictions that are treated as having an IGA in effect or agreed in substance will need to provide it by 31 December 2016 with:

  • a detailed explanation of why the IGA is not yet in force; and

  • a plan (with dates) detailing how it intends to bring the IGA into effect.


The IRS will then test this plan in light of the jurisdiction’s prior conduct of the IGA discussions to verify whether it still has firm resolve to bring the IGA into effect. Progress against this plan will then be monitored by the IRS. Any failure could result in the IRS withdrawing the agreement in substance. FIs that are resident in that jurisdiction would not be regarded as covered by an IGA 60 days later.


What should FIs do now?


FIs that are resident in the 43 jurisdictions concerned will need to ensure that they have contingency plans in place in the event that the IRS does withdraw the IGA status. They would then have just 60 days to ensure that they can comply with the full requirements of an FFI agreement to ensure that they remain FATCA-compliant.


The contingency plan would need to identify any local legal issues that may prevent compliance and how these would be resolved. FIs may also consider making representations through industry bodies to reinforce the advantages of concluding an IGA with their jurisdiction.

Contact us

Ali Kazimi

Managing Director

Tel: +44 (0) 203 865 0626

Mohsin Talati

Senior Manager Tel: +44 (0) 203 865 0625

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