After delays triggered by the United States government shutdown in October, on November 14, 2013 France signed an intergovernmental agreement regarding FATCA with the United States (the “France IGA”), becoming the 10th country to join the global FATCA network scheduled to take effect on July 1, 2014.

BACKGROUND

The Foreign Account Tax Compliance Act (“FATCA”), enacted in 2010, generally requires financial institutions outside of the United States (“FFIs”) to disclose offshore accounts belonging to U.S. taxpayers to the U.S. Internal Revenue Service (“IRS”) as a means of combatting U.S. tax evasion.  Failure by an FFI to participate in the FATCA system will result in a penalty tax of 30% being withheld from certain U.S. source income.

Final regulations implementing FATCA were released in January 2013 and require FFIs to register with the IRS and to sign an agreement with the IRS in which they agree to undertake specified due diligence, information reporting, and withholding with respect to their U.S. accounts.  However, to implement FATCA worldwide, and to address certain local law conflicts with FATCA such as privacy laws, the U.S. Treasury Department has been negotiating "intergovernmental agreements" (‘IGAs”) regarding FATCA with more than 50 countries.  France, along with Germany, Italy, Spain, the United Kingdom, and the United States, developed the model IGA now serving as the basis for implementing FATCA in many jurisdictions.

THE IGAs

The IGA comes in two versions, Model 1 and Model 2, with the Model 1 version containing a reciprocity option (known as “Model 1A”).  An FFI that is resident in a country with a Model 1 IGA in place generally will follow the IGA and local implementing law in order to be FATCA compliant.  Such an FFI will not sign an agreement with the IRS, although it generally will be required to register with the IRS.  By contrast, an FFI that is resident in a Model 2 IGA Country generally will follow the FATCA final regulations as modified by the Model 2 IGA, and thus will register with the IRS and sign an agreement with the IRS.  

Importantly, compliant FFIs resident in IGA countries (whether Model 1 or Model 2) will not be subject to the FATCA 30% penalty withholding tax on their U.S. source income.

The Model 1 IGA is widely viewed as the easiest path to compliance for FFIs, not only because of its clarity since local law and concepts generally will govern interpretation, but also because FFIs within its scope will not be required to deal directly with the IRS.   

THE FRANCE IGA

France signed the Model 1A reciprocal version of the IGA, which means that French FFIs, generally including funds and their managers, will report information about their U.S. customers' accounts to the French government, which, in turn, will exchange that information with the IRS.  The reciprocity means that the IRS will be required to send France similar information about French customer’s accounts in U.S. financial institutions.  The Annex 1 to the IGA contains information regarding the specific due diligence required of French FFIs within the scope of FATCA, while the Annex 2 details the specific accounts and entities that are exempt or entitled to reduced requirements under FATCA.  Again, under the France IGA, French FFIs will not sign an agreement with the IRS or be subject to the 30% penalty withholding tax on their U.S. source income.

The United States has signed nine other IGAs with the United Kingdom, Denmark, Germany, Ireland, Japan, Mexico, Norway, Spain and Switzerland, several of which are also reciprocal, and has reportedly reached substantive agreement on at least sixteen other IGAs. The addition of France to the roster of FATCA partner countries was widely viewed as critical for the continued global momentum behind FATCA.

FATCA REGISTRATION PROCESS

Most French FFIs still will have to register with the IRS and obtain a global intermediary identification number (“GIIN”) as part of the requirements of the France IGA and to avoid the FATCA withholding tax. The FATCA online registration portal has been open for registration since August 19, 2013.  However, FFIs cannot finalize their registration until after December 31, 2013, after which date the IRS will start approving finalized registrations and issuing GIINs.  

Beginning in June 2014, the IRS intends to publish a monthly online list of registered FFIs to allow withholding agents to verify the GIINs of their payees.  According to guidance put out by the IRS and U.S. Treasury, an FFI generally should finalize its registration with the IRS no later than April 25, 2014 to be included in the first public list of registered FFIs.  However, as a result of the France IGA, French FFIs will have some additional time to register with the IRS and obtain a GIIN because withholding agents will not be required to verify the GIINs of payee FFIs located in an IGA country until January 1, 2015.  

Gide will continue to review the France IGA and to follow its implementation in France. Please do not hesitate to contact any of us for further information.

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