Barbados is to be commended for its proactive approach to facilitating compliance with the Foreign Account Tax Compliance Act (FATCA). Even before the U.S. Internal Revenue Service (IRS) released the final Treasury regulations (the “Regulations”) on January 17, 2013, the Central Bank established a working committee to negotiate an inter-governmental agreement (IGA) by mid-2013. Foreshadowing the release of the Regulations was the notion that the IRS and the U.S. Department of Treasury (Treasury) intended to utilize IGAs between the U.S. and foreign countries (defined in the Regulations as FATCA Partners) to implement and ensure compliance with FATCA. The concept of IGAs arose last year when Treasury acknowledged that it was working with five European countries to develop an intergovernmental framework to implement FATCA. The focus was to “address…legal impediments to compliance, simplify practical implementation, and reduce FFI costs”.
The intergovernmental framework developed during the course of 2012 led to what is now known as the Model 1 IGA. There are two versions of the Model 1 IGA and these were disclosed in draft form by Treasury last summer; a reciprocal version and a non-reciprocal version. A Model 2 IGA was issued by Treasury in draft form in November, 2012. Under both Model 1 and Model 2 each FFI/NFFI is required to register with the IRS. The fundamental difference between Model 1 and Model 2 is that under Model 1, the FFI/NFFI does not enter into an agreement with the IRS; the FFI/NFFI is required to provide the required information to the FATCA Partner. Under the Model 2 IGA, the FATCA Partner will authorize and instruct each FFI/NFFI to register and “comply with the requirements of the FFI Agreement, including with respect to due diligence, reporting and withholding.” Under Model 2, a FFI/NFFI reports directly to the IRS. The Regulations require each FFI/NFFI under a Model 2 IGA to have an officer who is responsible for periodic certification of their FATCA compliance program.
In general, the reciprocal version of the Model 1 IGA mandates an exchange of information between the IRS and the FATCA Partner in regards to information about account holders in each country’s financial institutions that are residents of that other country. The non reciprocal version is unilateral in nature requiring disclosure only by the FATCA Partner to the IRS. The original intergovernmental framework was more in line with the non reciprocal version. The reciprocal version was prompted by objection by various jurisdictions to the unilateral nature of the exchange of information. The first model IGA was signed by the United Kingdom in September, 2012 and other signings followed with Denmark, Ireland, Mexico and Switzerland. Treasury has been attempting to streamline the process for entering into IGAs so that any interested government can enter into one before January 1, 2014. Treasury is currently engaged with more than 75 jurisdictions and continues to be interested in speaking to any country on entering into an IGA.
The realization is that FATCA is here to stay. It is evident that Treasury still does not have all the answers and that all parties involved are on a learning curve. Fortunately Barbados and its Central Bank have taken the initiative to engage Treasury in pursuit of an IGA. The Central Bank is acutely aware of the importance of ensuring Barbados’ FATCA compliance in recognizing “that the growth and continuation of its vibrant international business sector depends on its compliance with this US initiative”. Fortunately, Barbados already has in place a platform for the exchange of tax information by virtue of the tax treaty between the two nations. Moreover, the Central Bank’s ardent approach to FATCA compliance is consistent with Barbados’ reputation as a transparent offshore jurisdiction. Be reminded that Barbados was the only English speaking Caribbean country listed on the OECD’s original White List.
Barbados remains focused on completing an IGA. It is believed that the Central Bank’s working committee has completed a report and disclosure is forthcoming. In the interim, the US has revealed that they are working on a uniformed turn-key system for use by FATCA Partners to ease the burden of FATCA implementation. In any event, there are still many pieces to be put in place prior to January 1, 2014 IGA effective date.