China and Saudi Arabia Agree "In Substance" to FATCA IGAs with U.S.

Just days before the July 1 implementation date for FATCA, two countries, Saudi Arabia and China, reached agreements "in substance" with the United States with respect to an Intergovernmental Agreement ("IGA") to implement FATCA. Both countries agreed to a Model 1 type of agreement under which Chinese and Saudi financial institutions will be required to report information about accounts held directly or indirectly by U.S. persons to their respective home taxing authority, which will forward such information on to the U.S. IRS. It is unclear whether such agreements are reciprocal.

Dominica, Grenada, Guyana, Thailand and the Ukraine also reached agreements in substance with the U.S. with respect to a Model 1 type IGA. Taiwan agreed to enter into a Model 2 type IGA, which will require Taiwanese financial institutions to report account information directly to the U.S. IRS. Russia has not reached agreement with the U.S. after negotiations were cut off as a result of the situation in the Ukraine; however, Russia adopted legislation that permits Russian financial institutions to register with the U.S. under FATCA and provide account information directly to the IRS, thereby relieving compliant Russian banks from the threat of a 30% U.S. withholding tax being imposed on U.S. source payments beginning on July 1.

The U.S. Treasury Department announced in April that any country that reached an agreement in substance as to the terms of an IGA prior to July 1 would be treated as having an IGA in effect from July 1 until December 31, 2014. Over eighty countries have either signed IGAs with the United States or agreed in substance to the terms of such an agreement.

See: Cabinet FATCA Materials (for Cabinet subscribers only). For more information, please contact Daniel Mulcahy and Mark Howe.