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What Are The Differences Between The Model 1 And Model 2 Intergovernmental Agreement

Model 2 FFI are required, in accordance with the provisions of each IGA, to register with the IRS and comply with the provisions of the FFI agreement. The FFI agreement defines Faffi`s Obligations in Model 2 with respect to the identification and documentation of financial account holders, as well as procedures for direct notification to the IRS of information relating to certain account holders. This direct reporting requirement is often described as the main feature of IGA Models 2 and 1, which allows reporting to a local tax authority rather than the IRS. However, in the structuring of cross-border transactions, the most important difference between model IGAs is the treatment of fatca withholding tax. Regardless of the type of agreement, it is important to keep in mind that the two FATCA IGAS of the model are designed to perform the same function – disclosure of foreign accounts held by American persons (directly or indirectly). This means that the proliferation of both types of FATCA AIG poses a direct threat to all undisclosed foreign accounts of U.S. persons, with potentially disastrous consequences for these U.S. individuals, including potential criminal prosecutions and deliberate FBAR sanctions beyond the balances of these secret accounts. While in Model 1 legal systems, FFIs are generally not required to close the accounts of “recalcitrant” account holders, this Model 2 advantage does not depend solely on the fact that the FFI enters into an agreement with the IRS and meets the requirements set out in it (including the aggregate reporting of non-consensual account holders) , but also because the FATCA partner government provides an appropriate exchange of information within six months of the date of an IRS request. If the latter condition is not met, the relevant FFI is required to treat and close account holders related to the object as recalcitrant account holders. Model 2 is built essentially on the basis of Model 1 with some significant differences, as described below, but not too many surprises. FATCA requires foreign financial institutions (FFIs) to report information to the IRS on the financial accounts of U.S.

taxpayers or foreign companies in which U.S. taxpayers hold a significant stake. FFI are invited to either register directly with the IRS to comply with FATCA rules (and, if applicable, FFI agreements), or to comply with FATCA agreements (IGA), which are considered effective in their legal systems. Information on fatca rules and administrative guidelines for FATCA and information on taxpayer obligations can be found on the INTERNAL Revenue Service`s FATCA page. The essential elements of Switzerland`s joint declaration would prompt Switzerland to order its financial institutions to enter into FFI agreements with the IRS, to allow these FFIs to comply with FATCA reports and to respond to irS requests for additional information concerning accounts identified as “recalcitrant” and declared grouped by the FFIs. Compliant or exempt FFIs would not be required to terminate the accounts of recalcitrant account holders or to impose passport-thru payments on recalcitrant account holders or other financial institutions in Switzerland or in a country with an IGA FATCA.

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