What Are The Differences Between The Model 1 And Model 2 Intergovernmental Agreement

While FUs in Model 1 jurisdictions generally do not have to close the accounts of “recalcitrant” account holders, with Model 2, this benefit is contingent not only on the FIB entering into an agreement with the IRS and complying with the requirements of that agreement (including the aggregate reporting of non-consenting account holders), but also that the FATCA partner government has an Exchange of Information. If the latter condition is not met, the relevant IF must treat the account holders affected by such an aggregate request for information as recalcitrant account holders and likely close those accounts. Regardless of the nature of the agreement, it is important to remember that both FATCA AGBA models are designed to perform the same function – the disclosure of foreign accounts held by U.S. persons (directly or indirectly). This means that the proliferation of both types of INTERI FATCA model AGREEMENTS poses a direct threat to all undisclosed foreign accounts of U.S. individuals, with potentially catastrophic consequences for those U.S. individuals, including potential lawsuits and deliberate FBAR sanctions beyond the balances of those secret accounts. Annex II appears to omit certain categories of undertakings which are exempted or considered to be compliant listed in the Annex to Model 1. It is still unclear how important (if any) this omission is. In addition, the timing and mechanism for resolving specific issues addressed in the Model 1 understanding procedures is left vague in Model 2.

For example, while Model 2 includes the requirement to work together to develop an administered approach to Passthru payments, unlike Model 1, there is no requirement to participate in such a consultation on a specific date. The introduction of FATCA is usually done in two stages. First, a foreign jurisdiction of one of the two models of IGBA FatCA signs with the IRS. Second, the legislator of a foreign jurisdiction amends domestic legislation to implement the provisions of one of the two model FATCA intergovernmental agreements that the country has signed. IGA Model 2 combines some elements of the joint statements of Switzerland and Japan with the United States, but not others. For example, IGA Model 2 does not require FATCA partner financial institutions to enter into FFI contracts as provided for in the Joint Declaration with Switzerland. As set out in the joint statement with Japan, the IGA Model 2 provides that financial institutions must be responsible for “registering” with the IRS and meeting FATCA requirements, including due diligence, reporting, and retention. It is important to note that Model 2 of the IGA does not restrict compliance with foreign government-issued guidelines that are FATCA-compliant, as outlined in the Joint Statement with Japan. Assuming registration and compliance under a Model 2 IGA, an IFF would be treated as FATCA compliant and not retained.

Craig Cohen is a senior lawyer and John Hibbard is a partner at Allen & Overy LLP. In this article, the authors discuss fatca hold rules as they apply to financial institutions that are subject to Model 2 intergovernmental agreements. The Model 1 and Model 2 IGAs provide an overview of the final regulations, although there are likely significant differences. While the Treasury Department and IRS have worked hard to offer alternative approaches to FATCA implementation, these different approaches are likely to create challenges for IFs operating in different jurisdictions. .