Cross-posted at the Franco-American Flophouse
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 rather 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.
Thanks for taking the time to attend and for posting this.
It sounds a bit more like a pep rally than a public briefing but I suppose that’s to be expected.
I want to take issue with the comments made by Jesse Eggert on the Local Bank category. First, he says that local bank deemed compliant FFIs do not report. That isn’t true. They are required to report on US persons if that person (or entity) is non-resident (or close the account).
Second, he says that the category was created to avoid discrimination against local account holders. Logic suggests that is obviously false. The local bank definition is so narrow that virtually no bank will be able to qualify. I also believe that of those banks that could qualify, very few would actually want to.
Those that do qualify are very likely to have only very limited services and might not offer incredibly basic items like mortgages or credit cards. The only category of FFI that is not permitted to discriminate is the local bank deemed compliant FFI. By definition, all other FFIs (including local banks that don’t register or deemed compliant status) are permitted to discriminate. The very creation of this category guarantees discrimination. The only way to address discrimination is for the anti-discrimination clause to apply to all FFIs.
Furthermore, in order to become a deemed compliant FFI in the local bank category you still have to implement all of the FATCA processes for client on-boarding and reporting even though you don’t report (except non-residents). Would you actually save anything if you had to build the systems and capability but then didn’t have to do the reporting? What is the economic rationale to register for this category? If you were a small local bank least able to bear the immense cost of implementing FATCA, wouldn’t you rather just dump all of your (very few) US clients and certify you have none?
Thanks for your attendance, and your Amazing ability to keep your mouth shut and not get kicked out of the room.
Confirms again the sheer coldness ot it all. Zero interest in the human factors. Like robot drones. Doing their jobs in order to produce Soylent Green.
The IRS did create an online web portal for the American taxpayer, but, as I understand it, Congress killed it because of the hardware and software maintenance costs. Looks like the online web portal will be launched again, but this time only for FFI’s?
Victoria: please accept my thanks also for taking your free time to go to this meeting and listen with far more patience than I would ever have.
“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?”
I see two possibilities:
1) They’ll just outsource this to Dun & Bradstreet the way the rest of the government does, and then the entire world can wait 30 days unless they know the magic words (“federal government contractor”) and the magic phone number, or are willing to pay hundreds of dollars extra for useless credit check services (“gee that’s a nice credit record you have there Mr. Company, would be a shame if something negative went on it”).
Mobile app developers in particular hate DnB with a passion. Of course, some of this is Apple’s fault:
http://apple-duns.weebly.com/
2) Or they won’t outsource it and they’ll do an even worse job than DnB … something like the current process for obtaining EINs.
I find it very difficult to believe that the length of time it it appears to be taking to sign an IGA with Canada is because they are having difficulty understanding TFSA’s, RESP’s, RDSP’s, RRSP’s. or whatever else Canada might want to be having on the Annex 2 list. If Canada was really enthusiastic, you’d think that would happen pretty quickly
.
I don’t necessarily buy the arguments being given by the Germany government representative. Something IS up in Germany. Where was France too?
Kind of funny that they’ll say once the pitchfork and torches go up…”we had public forums on FATCA and it’s implementation”. If it was limited to government entities and corporations it wasn’t a true “public forum”, was it?
@edelweiss, Thank you for talking about the local bank category. I was so intrigued by what I heard I asked a third-party for confirmation. Yep, she said, it’s in the final regs. The trick is that to be deemed a “local bank” 98% of the business must be local. How many entities would fall into that category? No idea.
@Mark I said many Hail Mary’s before I walked into the room. 🙂 I figured my job was to listen (though I really regret not submitting some questions). I tried to keep aware of my own take on all this and to keep an open mind. Convince me, guys, that FATCA is really the cat’s pajama’s. I left with more questions then I arrived with which is another way of saying, “I’m not convinced.”
@Tim, The German rep was the least (I thought) enthusiastic member of the cheerleading squad. And I had exactly the same question – where was France?
I found this interesting
“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.
They seem to be suggesting they don’t really need to find “every US account”. Does that mean they are only really interested in the whales, or just that they don’t need to catch all minnows, since they hope fear will be enough to make us comply. That seems to be the US way. Prosecute a few, in the hopes that the rest will be behave themselves. But then you have to wonder, how hard are they going to work at prosecuting minnows to set an example, when there is not much in it for them, and they can’t be as sure of successful prosecution if someone puts up a fight with “good facts”
The really big question I have is what counts as “major systems failure”. Is catching or deterring the whales enough, or does missing lots of minnows count as :”system failure” too
The object of every fishing expedition is to Catch as many fish as possible.
My Swedish tax Consultant once explained that the authorities will take the lowest hanging fruit first, and work their way up, until their attention is diverted by Another tree with low hanging fruit.
As Sweden executes its IGA, it will report over per the indicia required to the banks per the final regs. But it is probably easier just to go through the Swedish data system for US persons. THe passport Agency is connected to the main system, where birth locations are registered. Also, the system will have persons who are US Citizens who are residents. Also, the data is available for those who have applied for Swedish passports who had previously been registered as US Citizens. Everything is easy. THe only challenge might be to connect a person to his parent’s US Citizen identification. But Sweden has good programmers and the country is motivated to give the best data.
Victoria, you are such a good girl. I’ll bet you were a Clean-plate-clubber. You deserve another merit badge for your efforts.
My Senator and I are both Eagle Scouts.
@Mark, I wish that were true. Truth is this woman spent way too many years as a raving alcoholic which was fun and not so fun if you know what I mean (especially right at the end before I got sober). I highly recommend John Waters’ Lapsed Agnostic to get a taste. What I am now is an sick old lady who is trying to get into heaven. 🙂
Well, I note that you are a member of an elite club of enlightened people. Few people make it through the hazing in the initiation.
For civil servants throughout the US and Europe as well as accounting and IT cos. FATCA is truly the gift that keeps on giving. Think of all those salaries in perpetuity- think of the supervisors who justify their incomes by the number of underlings. Why would they oppose FATCA and cut their own throats? And the cost can be passed on to the FFIs- wunderbar!
Victoria, thanks for such a clearly written description of this “Public Briefing.” And also for going to so much trouble to get in. I don’t think I would have been able to tolerate any of it. The only surprising feature (to me) is to hear a “relaxed” attitude – “It’s OK that not all US accounts will always turn up.” Maybe there will be some sort of systemic anomoly which will allow some to remain ostriches. (Wishful thinking….).
I can’t believe anyone could use the phrase “bilateral agreement” with a straight face. Every time I hear this I become more infuriated. And the lack of any regard for the laws of other countries, the rights of people. “Solved by the IGAs.” GGGGRRRRRRRRRR
This doesn’t sound like FATCA is going to implode unless of course, the answers concerning why it is taking so long are just diversionary. I continue to find some hope in the fact Canada hasn’t signed indicates Flaherty et al are sticking their necks out and refusing to back down, at least in some areas.
It takes a very strong person to tackle an addiction. My take on this is that this particular sort of strength fosters growth that cannot otherwise, be had. Probably a lot more interesting than “being a good girl, eh?”
As is noted on the Maple Sandbox site, there was a Reuters article on the 14th regarding the Swiss IGA which, near the end of the article (3rd para from bottom), notes that, while the US has negotiations underway with about 50 countries re IGAs, discussions with “key trading partners Canada and China are not progressing.”
http://www.reuters.com/article/2013/02/14/usa-tax-fatca-idUSL1N0BE55820130214
Rumours that a Canada-US IGA may be “imminent” are, I think, wishful thinking on the part of the IRS and those Canadian accounting and consulting firms who are hoping to make a bundle “helping” Canadian banks become FATCA-compliant.
Good luck with the Chinese, too, Mr. Treasury Secretary!
It ain’t over until the fat lady sings, if and when she actually does …
Saw this:
http://www.fsitaxposts.com/2013/02/17/notes-oecd-meeting-paris/
‘Notes from the Recent OECD Meeting – TRACE and FATCA
February 17, 2013 Posted by Jim Calvin’
In considering the post at the link above, note the source of the information (a FATCA-complex collaborator) – from the author’s bio:
“Jim Calvin, Deloitte & Touche LLP (Singapore). I am the DTTL* Asia-Pacific Tax Leader for the Financial Services Industry Practice, and am currently based in Singapore. I’m also DTTL’s Asia-Pacific regional leader for FATCA.”
@badger
Calvin is a pretty good source for the nuts and bolts of FATCA compliance. He is from the Compliance Complex, but generally doesn’t express opinions as much as just the facts, and I find a lot of the detail comparison work he does very helpful…
To Schubert’s point throughout this whole process which I have been following for something like a year and a half in general I have to find betting on Canada signing something later rather than sooner to be the correct choice. The thing I am increasingly questioning is whether we will have a signed IGA prior to the summer. I am increasingly thinking no.
Allison put up a short but good post about this public meeting.. 3 good points
What an OECD “public briefing” teaches about the rule of law.
There were no other members of civil society present
The issues are all cast as technical compliance ones
International tax will get worked out through these obscure, opaque, non-law making diplomatic channels
Read more here: http://bit.ly/XpFGWY
Yes, that’s a damn good post. Allison really nailed it.
@nobledreamer – Yes, it felt like the machine was moving forward and to hell with anything else. Yes, the tone was very reassuring and lots of attention paid to “burden relief.”
You’re right – life has certainly been interesting these past few years. 🙂 Apropos of being a “good girl” there is a great quotation that I pulled off another blog that I really like:
“I have learned as an activist, sometimes you must be disruptive to be noticed. Only when you are noticed can you be heard. ”
~Regina Holliday
where can we be disruptive?
@Mark Twain,
Parliament Hill perhaps? I can see the placards now: “Canadian government gives my child’s RESP to IRS”, “Canadian government won’t let me save for retirement”, ETC.
@ WhiteKat, re; ““Canadian government gives my child’s RESP to IRS””
I was thinking: ““Canadian government gives my Canadian born child to IRS.”