The Internal Revenue Service (IRS) has chosen to extend the “deemed compliant” status of countries that have reached intergovernmental agreements (IGAs) “in substance” with the US under the Foreign Accounts Tax Compliance Act (FATCA).
In April, the IRS said it would treat 20 uncompleted IGAs as completed and signed under FATCA until the end of 2014. In light of the large number of IGAs that are now agreed in substance but have not yet been signed, however, that deadline has been extended. Since April, the number has more than tripled, with 64 jurisdictions now having IGAs agreed in substance.
A country that is treated as if it had an IGA in effect but has not yet signed an IGA will be able to retain that status beyond December 31 provided that it demonstrates “firm resolve to sign the IGA as soon as possible,” according to IRS Announcement 2014-38.
After December 31, Treasury will review the incomplete IGAs on a monthly basis to assess whether a country should be removed from the list. This determination will be based on “the responsiveness of a jurisdiction to communications from the US regarding the IGA and whether the jurisdiction has raised concerns regarding its ability to sign or bring into force the text that was agreed to in substance,” according to the announcement. A country that has signed an IGA may also be removed from the list if Treasury determines that it is not taking the steps necessary to bring the IGA into effect within “a reasonable period of time.”
The extension will come as a relief to foreign financial firms based in these countries. The first phase of the FATCA became effective July 1; however, several jurisdictions had begun negotiations but had not yet entered into an IGA with the US at that time.