Grenada and FATCA Inter-Governmental Agreement (IGA)
Model IGAs Overview
In order to facilitate the transmittal of information from FFIs to the IRS, the U.S. Treasury Department has issued several model Inter-Governmental Agreements (“IGAs”). These are as follows:
- Reciprocal Model 1A Agreement, Preexisting TIEA or DTC
- Nonreciprocal Model 1B Agreement, Preexisting TIEA or DTC
- Nonreciprocal Model 1B Agreement, No TIEA or DTC
- Model 2 Agreement, Preexisting TIEA or DTC
- Model 2 Agreement, No TIEA or DTC
Model 1 IGA
The category of agreements referred to as the Model 1 IGA, requires Foreign Financial Institutions (“FFIs”) to report all FATCA-related information to their own governmental agencies. The government agency would then report the FATCA-related information to the U.S. Internal Revenue Service. The Model 1 IGA takes two forms – reciprocal and nonreciprocal. The Model 1A IGA is reciprocal, requiring the United States of America to provide certain information relating to residents of the FATCA Partner country to the government agency in that country. The FATCA Partner country will also provide FATCA-related information to the U.S.
The Model 1B IGA is nonreciprocal. This IGA is available to countries which do not currently have in effect a Double Taxation Convention (DTC) or a Tax Information Exchange Agreement (TIEA) that provides for automatic exchange of information with the U.S. Government. FATCA-related information is provided by the FATCA Partner country to the U.S., however no information is sent from the U.S. to the FATCA Partner country. An FFI covered by a Model 1 IGA will not need to sign an FFI agreement, but it will need to register on the IRS’ FATCA Registration Portal online.
Model 2 IGA
The Model 2 IGA requires FFIs to report information directly to the IRS. Under such an agreement, FFIs will need to register with the IRS. Certain Foreign Financial Institutions will also sign a version of the FFI agreement modified to reflect the IGA. In the event of any discrepancy found by the IRS with the information provided by the FFIs, the FATCA Partner’s government will be contacted by the IRS to deal with the query.
Model IGA selected by GRENADA
The island of Grenada has selected the Model 1B IGA, where all information required under FATCA will be submitted by the FFI to the government’s Competent Authority (Inland Revenue Division) for FATCA purposes. The Competent Authority would then submit the information to the IRS. All communication from and to the IRS will be done via the government’s Competent Authority.
Benefits of the Model 1B
- Allows for the Government to maintain control of the process and avoid reputational damage. The Government is able to monitor financial information which is sent out of the country;
- Preferable that the government deals with the IRS through an IGA rather than the individual FFIs directly;
- IGA would address certain legal concerns that may not have been an option had the FFIs been required to report information directly to the IRS;
- Stepping stone to obtaining a Model 1A, where information will be reciprocated;
- Greater transparency in respect to FATCA compliance by FFIs.