Global Tax Alert | 31 January 2014
Italy signs FATCA intergovernmental agreement with the US
On 10 January 2014, the Italian Minister of Economy and Finance and the Ambassador of the United States in Italy signed an intergovernmental agreement for the implementation of the Foreign Account Tax Compliance Act (FATCA).
FATCA was introduced by the US Government in 2010 as a set of provisions implying a reporting regime for foreign financial institutions (FFIs) aimed at counteracting offshore tax evasion by US persons. Accordingly, FATCA provides the strengthening of several rules related to account holders identification and disclosure obligations to be provided by FFIs.
Specifically, to reach the objective of receiving from FFIs the relevant information on any US account holders, FATCA requires US withholding agents to withhold (in addition to any ordinary source tax) a specific 30% tax from certain payments1 unless the FFI is compliant with FATCA disclosure obligations or is established in a country that has concluded an intergovernmental agreement such as the one recently signed with Italy.2
Since FATCA was enacted, its requirements have generated a number of issues due to local foreign countries legal restrictions and to the heavy compliance burdens imposed on foreign financial institutions. Therefore, FATCA has been implemented on a step by step basis as follows:
- • On 8 February 2012, the US together with France, Germany, Italy, Spain and the UK reached and published a “Joint Statement” regarding the intention of such countries to develop an intergovernmental approach to implement FATCA.
- • On 26 July 2012, the US Treasury Department issued the first model for an Intergovernmental Agreement (1-IGA) based on an automatic information exchange on a government-to-government basis.3
- • On 17 January 2013, the US Treasury Department and the Internal Revenue Service (IRS) released final FATCA regulations (Final Regulations) which provided for a phased implementation of the relevant requirements beginning 1 January 2014 through 2017. Although with some exemptions, Final Regulations provided that withholding agents4 were required to withhold as per FATCA provisions starting from the payments made after 31 December 2013.
- • On 12 July 2013 the US Treasury Department delayed by six months the starting date established by Final Regulations. As a result, withholding agents will be generally required to start applying FATCA withholding tax on payments made after 30 June 2014.
The intergovernmental agreement signed by the US and Italy on 10 January 2014 substantially replicates the above mentioned model 1-IGA (as last amended on 4 November 2013) with some minor changes in Annex II with reference to certain Italian financial institutions exempt from reporting obligations as well as to some exempt products.
Since compliance with FATCA implies several obligations for Italian banks and other financial institutions, a prompt ratification of the intergovernmental agreement is desirable.
1. Qualifying payments in principle include US source payments of interest, dividends, rents, proceeds from the sale of property and other fixed income.
2. For additional information on FATCA and the intergovernmental agreement models, see EY International Tax Alert, FATCA Model Intergovernmental Agreement released, dated 30 July 2012.
3. A second model (2-IGA) was issued on 14 November 2012. Under such model the FFIs would report specified information directly to the IRS supported by a government-to-government exchange of information if needed.
4. Including participating FFIs, qualified intermediaries that assume withholding responsibility and withholding foreign partnerships and trusts.
For additional information with respect to this Alert, please contact the following:
Studio Legale Tributario in association with Ernst & Young, Milan
- • Marco Ragusa
+39 02 851 4926
- • Domenico Serrano’
+39 02 851 4932
Ernst & Young LLP, Italian Tax Desk, New York
- • Emiliano Zanotti
+1 212 773 6516
- • Andrea De Nigris
+1 212 773 0478
- • Fabio Rousset
+1 212 773 9302
EYG no. CM4149