In one of our earlier articles: Beware that your Non-U.S. Financial Institutions May Be Sharing Your Financial Account Information with the Internal Revenue Service, we discussed Inter-Governmental Agreements (IGAs) that the U.S. government had entered into with the tax authorities and financial institutions of other countries to successfully implement compliance with the FATCA regulation imposed on U.S. persons abroad. The IGA proposes two framework models: Model I, in which foreign financial institutions (FFIs) will report account information of U.S. persons to their relevant domestic tax authority, which will then forward this information to the IRS; and Model II, where FFIs will directly report account information of U.S. persons to the U.S. IRS.
In order to achieve this, the U.S. government also introduced the International Data Exchange Service (IDES), an electronic data exchange/delivery point between U.S. and foreign FIs and/or tax authorities via a secure web application to transmit FATCA data directly to the IRS.
Along with the IGAs, the U.S. government will also be entering into Competent Authority Arrangements (CAAs) with the partnering countries to define the reporting process. Very recently, on the 24th of September, 2015, the Australian and United Kingdom (U.K.) government signed the CAA with the U.S. government, becoming the first countries to agree to assist the IGAs in combating tax evasion under FATCA.
Here is a brief overview of the CAA and how it impacts the U.S. and other signatory countries.
What is a Competent Authority Arrangement?
As per the IRS, a Competent Authority Agreement is a bilateral agreement between the United States and the treaty partner to clarify or interpret treaty provisions, such as the ones used to justify the intergovernmental agreements, or IGAs, under FATCA.
Purpose of this Competent Authority Arrangement (CAA)
The competent authority arrangements were signed in accordance with the “Agreement between the Government of the United States of America and the Government of Australia to Improve International Tax Compliance and to Implement FATCA” and the “Agreement Between the Government of the United States of America and the Government of the United Kingdom of Great Britain and Northern Ireland to Improve International Tax Compliance and to Implement FATCA”.
CAA Between U.S. & U.K. and U.S. & Australia
The Competent Authority Arrangement between the U.S. and U.K. and the U.S. and Australia cover reporting aspects related to the sharing of information via International Data Exchange Service (IDES), such as:
- Interpretation of a foreign financial institution, in this case: Australian or U.K.-based financial institution, and parameters based on which the institution may qualify as a ‘Reporting Foreign (Australian/U.K.) Financial Institution’ or ‘Non-Reporting Foreign (Australian/U.K) Financial Institution’;
- Matters concerning implementation of the IGA, including: registration, confidentiality and data safeguards, costs, consultation and modification, etc;
- Inclusion of Australian or U.K. based FFIs’ names and GIINs issued by FATCA Registration System on IRS FFI list;
- Provision of necessary information, by U.S. Competent Authority to the Australian and U.K. Competent Authority, to identify each registered Australian or British Financial Institution included on the IRS FFI list;
- Automatic exchange of required information within nine months after the end of the calendar year to which the information relates;
- Concerns relating to information transmission, such as: Use of IDES as a Data Collection Tool whether (Model 1 or Model 2) and consistency of flow of information;
- Right to revoke an election, confidentiality, and other protections with respect to exchanged information;
- Managing and reporting non-compliance by an FFI. The Competent Authorities expect, however, that in the ordinary course a determination of such significant non-compliance would not occur until at least 120 days after the notice;
- Confidentiality and protection of information shared through IDES under IGA, including limited usage of the provided information;
- Monitoring of information uploaded and downloaded, and ensuring full protection of such information during the time the transmission of information takes place over IDES.
Conclusion
The U.S. Competent Authority expects that numerous other CAAs with additional competent authorities in IGA jurisdictions will be signed in the near future. As per IRS Commissioner John Koskinen: “The signing of these Competent Authority Arrangements marks another significant milestone in the international effort to gain proper reporting of offshore accounts and income.”
AG Tax LLP Can Help
If you have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canadian, and other international tax laws.
We can assist with:
- Canadian Personal and Corporate tax returns
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