The Netherlands and the United States of America have signed a FATCA (Foreign Account Tax Compliance Act) Intergovernmental Agreement (the IGA) on 18 December 2013 to improve international tax compliance and to establish automated data exchange between the tax authorities of both countries beginning September 2015.
FATCA is a US national law that requires all Foreign Financial Institutions (FFIs) worldwide to report the names and other information of their US clients (citizens and businesses) to the US Internal Revenue Service (IRS). FATCA aims to reduce tax avoidance of US persons and businesses.
As of the date of signing the IGA, the US intends to treat each Dutch Financial Institution (DFI) as complying with FATCA until the IGA enters into force and ensures that DFIs no longer separately need to conclude individual FFI Agreements with the IRS. Due to the IGA, the administrative burden for DFIs will be reduced and DFIs will not have to withhold the 30% FATCA withholding tax unless the DFI is registered as a non-participating FFI. Equally, payments to DFIs can be made free from the 30% FATCA withholding. It is the aim of the Dutch authorities to have the IGA enter into force by 30 September 2015, as the agreement needs approval from the Dutch parliament.
The IGA provides for automatic reporting and exchange of information for accounts of US Persons with the DFIs. The information will be reported by the DFIs to the Dutch Tax Authorities, who will automatically exchange the information with the IRS. The IRS on its turn has committed itself to exchange information on accounts held by Dutch residents in the US.
FFIs include, but are not limited to: depositary institutions (e.g. banks), custodial institutions (e.g. mutual funds), certain types of insurance companies and investment entities (e.g. hedge funds or private equity funds).
Annex II to the IGA provides for some exceptions or exclusions from FATCA for DFIs that are considered as Exempt Beneficial Owners, treated as Non-Reporting DFIs. Amongst others this applies to certain governmental bodies, international organisations, pension funds that meet certain requirements and investment entities that are wholly owned by exempt beneficial owners. For the insurance industry specific guidance is provided with respect to which products and accounts will be treated as Non-Reportable.
Furthermore, Annex II to the IGA qualifies certain entities as Deemed-Compliant DFIs and which are therefore treated as Non-Reporting DFIs. This applies to, amongst others, non-profit organisations with a charitable goal like the Dutch ANBI’s and certain collective investment vehicles.
Compliments of EACCNY Member Houthoff Buruma