FATCA: New Government-to-Government Model: U.S. Treasury Department Issues Joint Statements with Japan and Switzerland Outlining a New Intergovernmental Model

Sullivan & Cromwell LLP - June 29, 2012

On June 21, 2012, the U.S. Treasury Department released two separate joint statements with the governments of Switzerland and Japan (the “Switzerland Joint Statement” and “Japan Joint Statement” and collectively, the “Joint Statements”).  These statements outline a new framework under which “foreign financial institutions” (“FFIs”) in Switzerland and Japan could more easily comply with the requirements of FATCA.  In contrast to the February 2012 proposal issued by the U.S. Treasury Department and five European governments, which contemplates substantial information exchange between governments (the “Intergovernmental Model”), the Joint Statements contemplate that FFIs would report their U.S. accounts directly to the IRS, and the role of the local tax authorities would be limited to serving as an intermediary for information regarding recalcitrant account holders (the “Supplemental Model”).  Entering into such an agreement would (i) relieve FFIs in the relevant jurisdiction from having to withhold on so-called “passthru payments,” (ii) clearly identify certain types of FFIs in that jurisdiction as “deemed compliant,” and (iii) provide other measures to reduce the burden of FATCA compliance.

The Joint Statements, as well as public comments by Treasury Officials last week, indicate that the U.S. is open to adopting either approach with interested countries.