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Tax Law

"You First, No You First" - Norway's FATCA Agreement with U.S. Treasury

Norway signed an IGA with the US Treasury on April 15.  I blacklined the Norway agreement against the Model 1 FATCA, (you can download the comparison here) and note that some of the regular features appear, including deemed-compliance status for pension funds and "local" banks* but want to address in this post what I'll call the "you first, no you first" provision in Article 4, paragraph 6.

Some FATCA watchers were surprised to see this paragraph, and I admit I had not noticed it before so I assumed it was new--until I blacklined it and found that no, that paragraph is in the Model 1 Agreement (however it is not in the IGAs with Mexico or the UK), and the Model language is identical to that in the Norway agreement.

In any event, having now read this Art. 4 paragraph 6 more closely, I notice there is actually a good bit of maneuvering going on here. Here is the language:

6. Coordination of Timing. 
Notwithstanding paragraphs 3 and 5 of Article 3:
a) Norway shall not be obligated to obtain and exchange information with respect to a calendar year that is prior to the calendar year with respect to which similar information is required to be reported to the IRS by participating FFIs pursuant to relevant U.S. Treasury regulations;
b) Norway shall not be obligated to begin exchanging information prior to the date by which participating FFIs are required to report similar information to the IRS under relevant U.S. Treasury regulations;
c) the United States shall not be obligated to obtain and exchange information with respect to a calendar year that is prior to the first calendar year with respect to which Norway is required to obtain and exchange information; and
d) the United States shall not be obligated to begin exchanging information prior to the date by which Norway is required to begin exchanging information.

This is actually not at all easy to read (on purpose? One always wonders).  But for sure this does not say, as some readers initially thought, that Norway can wait to give info to the IRS until the IRS begins to give info to Norway. In fact, it rather says quite the opposite. Nor, as I thought when I first read it, does it say that Norway need not exchange until Treasury begins to require equivalent information be reported on Norwegian account holders by US FIs to the IRS.

Instead, it says very simply that Norway need not exchange information with the IRS before the US Treasury regulations require FFIs to begin reporting to the IRS, and the IRS will not exchange info with Norway before Norway starts exchanging. All this use of negatives is confusing so let me try to put it in positive terms: it in effect says that Norway will start giving the IRS info once the IRS requires FFIs to begin reporting per the Treasury regs. Notice that Treasury makes no affirmative commitment on the part of the IRS to actually exchange thereafter--only that in any case it will not exchange before Norway does. It implies that it will be obligated to automatic exchange thereafter, but I am not sure even that is so clear.

The Mexico IGA--the only agreement that is technically in force right now--should provide ample proof that the Treasury has not committed to actual automatic exchange of information with its IGA partners (regardless of para. 6), and certainly that the Treasury is not going to go first. On the contrary, Treasury has only said that it will begin requiring US banks to provide the IRS with information on IGA-country account holders, which could be exchanged with such IGA partners if Treasury determines that such sharing would be appropriate. 
According to the Treasury, "Even when [an info exchange] agreement exists, the IRS is not compelled to exchange information... if there is concern regarding the use of the information or other factors exist that would make exchange inappropriate."

No word on what those other factors might be, so read this as a broad grant of discretion to the Treasury, with no accountability required toward the IGA partner.

Mexico, it appears so far, has not yet been given the green light, so I can only assume that the status quo right now is Mexico dutifully turning over (on a monthly basis I believe) IGA-compliant information, while the IRS provides Mexico nothing in return. You might like to see
what the American Banking Association thinks about this status quo. I think it is safe to say that the Florida and Texas Bankers Associations are determined to at minimum delay reciprocal automatic information exchange as long as possible, if they cannot eliminate it all together.

Now, if I have these facts incorrect and the IRS is actually exchanging information with Mexico under the IGA, I hope that someone will please correct me right away because this is tremendously important--as I have suggested before, the information Mexico could get from the IRS under such an arrangement could be explosive in terms of exposing the volume and direction of tax evasion as between these two countries (not that the public will get much or any information on these things--on the contrary we most likely will learn absolutely nothing, more's the pity).

One might say the USA won't similarly refuse to share information with Norway as such behavior smacks as bad faith, and countries have a positive duty to on the contrary act in good faith with respect to "international agreements". Moreover, it strains credulity to think that Treasury would start collecting information on Norwegian account holders from US banks, without actually planning to share it.

To that I would counter, presumably Norway knows exactly what it got in this deal: the same promises as have come before.

This is consistent with the rest of the IGA, which suffers from the same lack of reciprocity that in my view belies the character of these instruments as international agreements at all, even beyond their
likely constitutional violation in the USA.  I recently wrote an article about the lack of reciprocity in the IGAs, why I think that is so problematic in terms of creating a perverse market advantage for the USA to facilitate tax evasion, and why there is not much reason for being optimistic that the necessary sea change will occur to make FATCA a viable multilateral regime with equal applicability to the world's largest destination for foreign capital. You can read that article here, and as alway I welcome feedback, especially to correct any of my misunderstandings.

To sum up, in my view the "you first, no you first" provision adds nothing in terms of greater reciprocity in the Norway IGA, while the same procedural and substantive defects we have already seen continue unabated.


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