Germany in no hurry to sign its Fatca IGA, expert says

One of the original five Fatca partners likely to take its time over signing IGA, expert warns

Germany is in no hurry to sign its Foreign Account Tax Compliance Act (Fatca) intergovernmental agreement (IGA) with the US Internal Revenue Service (IRS), an industry expert has warned. The jurisdiction is one of the original so-called five Fatca partner countries of the US, but it is yet to sign an IGA with the US.

Of the original five – France, Germany, Italy, Spain and the UK – only Spain and the UK have signed IGAs. Further IGAs have been signed with Denmark, Ireland, Mexico, Norway and Switzerland. The remaining three partner countries are rumoured to be close to finalising their agreements, but Frankfurt-based Martin Schulte, head of capital markets at Germany's Association of Foreign Banks, says Germany is in no rush to sign its IGA.

"I would like to ask why it would be necessary to hurry," he says. "The reporting starts in 2015 and it seems very unlikely that Germany won't sign the IGA in 2013. Aside from a few exemptions and procedures coming from national peculiarities, the final regulations contain most of the relevant implementation measures, which means that the banks are already aware of what's coming. Really, there is no reason for the German legislator to hurry."

But others in the industry think there is more to it than just a simple lack of incentive. In November 2012, a German-Swiss tax agreement failed to gain approval from the German parliament because of disagreement among the different parties in government. The accord would have seen undeclared assets held by Germans in Swiss bank accounts become liable for taxation by the German government. Some argue that this has implications for Germany's IGA with the IRS.

"Governments tend to worry about the political aspects of their actions," says Andrew Watters, London-based director and tax specialist at law firm Thomas Eggar. "Germany received a lot of internal criticism that they were being too kind to tax evaders over their move to sign an agreement with Switzerland."

Angela Foyle, a tax and financial services specialist at consultancy BDO in London, agrees that there may be national concerns at play for Germany where IGAs are concerned.

"The message with respect to Germany is a little unclear," she says. "I understood that Germany have yet to sign their IGA owing to 'national and international delays' rather than specific problems with the text, but there has been some suggestion that unless certain fears were allayed then they might still operate – at least initially – under the IRS [and full Fatca] regulations."

Jurisdictions that signed their IGAs before the final Fatca regulations came out may now find themselves having to rethink elements of their agreements, Schulte says.

"All the countries that have signed up already – including the UK – will now find that the disadvantage of that move is that the parts where the US relaxed the implementation burden in the final regulations are not part of these IGAs," he explains. "So those agreements will now have to be adapted if these countries want the benefits that the US came up with in the final regulations, such as specifying a lot of the definitions and deleting overly burdensome aspects that don't enhance the quality of the data transmitted."

Foyle says it is possible that the UK could be at a disadvantage for having signed its IGA before the final regulations came out in January. But she points out that Article 7 of the UK-US IGA states that the UK shall be granted the benefit of any more favourable terms that may be afforded under a future bilateral agreement with another Fatca partner country.

"The US is also obliged to inform the UK if more favourable terms are granted," she says. "That said, this effectively 'most favoured nation' clause does not apply to annex II of the IGA, which sets out country-specific exemptions. So it could be that another country will achieve a better result than the UK, although one would expect the UK annexe to be used as something of a model for other countries."

And Watters thinks the UK had other reasons for signing its IGA earlier than other jurisdictions. "The UK is trying to piggyback on Fatca into getting information from its crown dependencies on UK resident persons – the so-called 'son of Fatca'. So there is an advantage to the UK as well as the US [of the UK signing its IGA early]."