The Governments of Jersey, Guernsey and the Isle of Man have announced their intention to negotiate “Model 1” inter-government agreements (“IGAs”) with the US in relation to FATCA. The agreements are expected to be similar to the agreement between the UK and the US signed on 12 September 2012 a copy of which can be found at the attached link: http://www.hm-treasury.gov.uk/d/facta_agreement_tax_compliance_140912.pdf.
The IGA approach has been designed in order to address certain legal and administrative difficulties presented by FATCA. The inter-governmental approach provides that local financial institutions would instead report certain information to the respective local tax authorities, who would then pass the information to the IRS. As such, IGA provides a local framework within which:
- The most significant legal barriers to compliance, such as those related to data protection, are addressed.
- Withholding tax will not be imposed on income received by Jersey, Guernsey and Isle of Man financial institutions.
- Jersey, Guernsey and Isle of Man financial institutions will not be required to withhold US tax from payments they make.
- A number of administrative burdens will be eased including in particular the need for each foreign financial institution to enter into a separate agreement with the IRS and abide by its terms.
- The due diligence requirements will be more closely aligned to requirements under existing local anti money laundering rules.
There is likely to be a wider scope of institutions and products which are exempt from FATCA and deemed compliant, although it is felt that it will be very difficult to include much in these categories.
It is likely that the Islands will be able to produce guidance on implementation that better reflect the legal and business frameworks within which local financial institutions operate.
Timing is unclear but it is understood that the timing of the registration process is unlikely to alter and so financial institutions should still seek to be in a position to register no later than 30 June 2013, albeit that the registration process is expected to be much simpler than that envisaged by the proposed regulations.