US banks Fatca Reciprocal on legal entities


Forcing USA to reciprocal reporting
1. The OECD is amending the CRS to target reporting jurisdiction Financial Institutions advising on accounts maintained by third parties in the USA.
2. FINCEN has published an advanced notice of rule making of Customer Enhanced Due Diligence for Legal Entity Customers, requiring US Financial Institutions to identify ultimate Beneficial Owners of their legal entity customers. Furthermore, Treasury has announced in April 2016 they will be proceeding with the rule. Note that the purpose of the rule, as described on page 3, middle column is "Facilitating reporting and investigations in support of tax compliance, and advancing national commitments made to foreign counterparts in connection with the provisions commonly known as the Foreign Account Tax Compliance Act(FATCA)".
3. The FATCA IGAs is not authorised by Congress, only the original Statute is. The IGA not a Congress sanctioned treaty, but is a Presidential executive order. Therefore automatic exchange of information can be an executive order. An executive order may be done ifit helps an agency do its function. The agency in this case would be IRS / Treasury undertake its promise of FATCA reciprocal reporting.
4. The EU Parliament is to propose that the EU impose a 35% withholding on gross proceeds on any US bank doing a transaction within the EU unless that bank agrees to automatically exchange information as per the FATCA IGA promises. I am gave my brief to EU Parliament on this subject.

  • Article 6 from of the U.S. Model IGAs (Intergovernmental Agreements) says: “Reciprocity. The Government of the United States acknowledges the need to achieve equivalent levels of reciprocal automatic information exchange with [FATCA Partner]. The Government of the United States is committed to further improve transparency and enhance the exchange relationship with [FATCA Partner] by pursuing the adoption of regulations and advocating and supporting relevant legislation to achieve such equivalent levels of reciprocal automatic information exchange.

This is confirmed in the Economist Article

Frustration with America has grown in Europe, which forms the core of the CRS. A group in the European Parliament argues that, if America refuses to reciprocate fully, it should be hit with a reverse FATCA: a levy on payments originating in the EU that flow through American banks. “We don’t want a tax war, but nor can the US have it all its own way,” says Molly Scott Cato, one of the MEPs.

5. In parallel, the EU Commission is working with the OECD to instigate a peer review of the USA if it does not automatically exchange information equivalent to FATCA.
6. Tax justice Network paper on EU imposing withholding tax on US Financial Institutions unless they agree to reciprocal automatic exchange of information as promised ion the IGAs.