Germany may ditch Fatca if reciprocity agreement not honoured, experts warn
Germany will not meet its Foreign Account Tax Compliance Act (Fatca) obligations if the US reneges on an intergovernmental agreement with the country, an observer of the US legislation warns.
The US Internal Revenue Service has released details of how five intergovernmental arrangements – agreed in February – are anticipated to work. The agreements are between the US and five European Union (EU) countries: France, Germany, Italy, Spain and the UK. Among other things, they outline how reciprocity agreements will work, laying out a framework for the US to collect data on behalf of those countries.
These agreements are crucial, says James Jatras, principal of Squire Sanders Public Advocacy, a Washington, DC-based government relations firm – to the extent that some countries may not comply with US Fatca requirements if they do not receive data in return. He points to Germany as being particularly vocal on the issue.
“The only way Berlin can see going forward with domestic enforcement of the US requests for Fatca information is to have it on a reciprocal basis,” he says. “I don’t know why that’s so important to them, but they insist it’s important. If that reciprocity collapses on the US side, I’m told the Germans will say ‘no, we can’t do this’.”
Angela Foyle, a tax and financial services specialist at consultancy BDO in London, is not surprised by this. “I can’t comment on it specifically because it’s only what I’ve read, but having read some of the material before the intergovernmental agreement came in or was mooted, I would well believe that.”
She says it was “absolutely crystal clear” that Germany expects a quid pro quo for putting in place any kind of obligations under Fatca. “So Fatca normal, as opposed to Fatca under the intergovernmental agreement, would become mutual co-operation assistance and reciprocity of reporting obligations,” she explains. “Germany was one of the prime movers behind the changes to the EU savings directive for that very reason,” she adds.
Frankfurt-based Martin Schulte, head of capital markets at the Association of Foreign Banks in Germany, agrees reciprocity is key for Germany to engage in an intergovernmental Fatca agreement. “The reciprocity is one of the key issues for the German government,” he says. “Although I don’t think the German Treasury expects there are too many German citizens hiding in non-transparent vehicles in the US, reciprocity is a matter of principle – like a balance of power and ‘we’re not just following the US wherever they go: if they want something from us, we want something back’.”
The comments come on the back of growing concerns that the agreement is not legally binding on the US side. As such, European participants fear US banks may struggle to supply relevant data to a growing number of individual countries as part of the reciprocity agreements, and may decide not to honour them.
Schulte expects the German government won’t take kindly to any kind of rescindment from the US on the intergovernmental agreement. “If it turns out the agreement wasn’t properly enforced on the US side, then I don’t think the German government would undertake substantial effort to enforce the German Fatca implementation, even though it’s going to be a national law,” he says.
As well as the five intergovernmental agreements, the US has entered into so-called model II agreements with Switzerland and Japan. Nordic countries have also been pushing for reciprocity-style agreements.
Schulte warns this may have a negative impact on the reciprocity process. “Unfortunately, if other partner countries insist on reciprocity too, US banks might face even more effort and compliance costs than their foreign counterparts, since they will have to identify and report customers from not only one but from various countries. It’s hard to imagine this could really work.”
This article was first published on Risk