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Ukrainian FATCA Agreement Authorized for Signature

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On November 9, 2016, the Ukrainian government authorized the Ukrainian FATCA Agreement for signature. Let’s explore this new development in more depth.

Ukrainian FATCA Agreement and FATCA Background

The Ukrainian FATCA Agreement is one of the many bilateral FATCA implementation agreements signed by the great majority of jurisdictions around the world. The Foreign Account Tax Compliance Act (FATCA) was enacted into law in 2010 and quickly became the new standard for international tax information exchange.

FATCA is extremely complex, but its core purpose is very clear – increased US international tax compliance (with higher revenue collection) by imposing new reporting requirements on US taxpayers and especially foreign financial institutions (FFIs). Since FFIs are not US taxpayers, the United States has been working with foreign governments to enforce FATCA through negotiation and implementation of FATCA treaties. The Ukrainian FATCA Agreement is just one more example of these bilateral treaties.

Ukrainian FATCA Agreement is a Model 1 FATCA Agreement

There are two types of FATCA treaties – Model 1 and Model 2. Model 2 FATCA treaty requires FFIs to individually enter into a FFI Agreement with the IRS to report the required FATCA information directly to the IRS (for example, Switzerland signed a Model 2 treaty).

On the other hand, Model 1 treaty requires FFIs in the “partner country” (i.e. the country that signed a Model 1 FATCA agreement) to report the required FATCA information regarding US accounts to the local tax authorities. Then, the tax authorities of the partner country share this information with the IRS.

The Ukrainian FATCA Agreement is a Model 1 FATCA Agreement.

When will the Ukrainian FATCA Agreement Enter into Force?

The Ukrainian FATCA Agreement will enter into force once Ukraine notifies the US government that it has completed all of the necessary internal procedures for the ratification of the Agreement.

What is the Impact of Ukranian FATCA Agreement on Noncompliant US Taxpayers?

The implementation of the Ukrainian FATCA Agreement will mean that the Ukrainian government will force its FFIs to identify all of the FATCA information regarding their US accountholders and share this information with US government.

This further means that any US taxpayers who are currently noncompliant with the US tax reporting requirements (such as FBAR, Form 8938, foreign income reporting, et cetera) are now at an ever increasing risk of detection by the IRS and the imposition of draconian IRS penalties.

Contact Sherayzen Law Office for Help With US Tax Compliance in light of the Ukrainian FATCA Agreement

If you have undisclosed Ukrainian assets (including Ukrainian bank accounts) and Ukrainian foreign income, contact Sherayzen Law Office for help as soon as possible. We have helped hundreds of US taxpayers around the globe (including Ukrainians) to bring their US tax affairs in order and we can help you!

Main Differences between Model FATCA IGAs

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As FATCA is being adopted by more and more countries, it is important to understand that there are two types of model FATCA IGAs (i.e. intergovernmental agreements to implement FATCA) that are signed between various countries and the United States. Both model FATCA IGAs were issued by the US Treasury Department and both model FATCA IGAs are perfectly valid, but some countries prefer one model FATCA IGA over the other. In this article, I would like briefly discuss the main differences between the two model FATCA IGAs.

Model FATCA IGAs Background

FATCA (Foreign Account Tax Compliance Act) was enacted by US Congress in 2010 to target tax non-compliance of U.S. taxpayers with foreign accounts. Since that time, this law has established the global standard for promoting tax transparency and has been adopted by a very large number of countries around the globe.

The adoption of FATCA usually occurs as a two-step process. First, a foreign jurisdiction signs one of the two model FATCA IGAs with the IRS. Second, the foreign jurisdiction’s legislature modifies domestic law to implement the provisions of whatever one of the two model FATCA IGAs that the country signed.

Model FATCA IGAs: Model 1

The first of the two Model FATCA IGAs is called “Model 1IGA”. Its principal feature is that it requires foreign financial institutions (FFIs) to report all information required under FATCA to their domestic government tax agencies. The domestic tax agencies would collect all of the FATCA information and turn it over of the IRS.

Since the FFIs would do all of their reporting domestically to their own agencies, Model 1 IGA is sometimes negotiated as a reciprocal agreement. This means that some Model 1 IGAs require the IRS to provide certain information with respect to the tax residents of the country that signed such a reciprocal Model 1 IGA.

Finally, the FFIs covered by a Model 1 IGA do not need to sign an FFI agreement. However, the FFIs will still need to register on the IRS’s FATCA Registration Portal or file IRS Form 8957.

Model FATCA IGAs: Model 2

The second of the two Model FATCA IGAs is called “Model 2 IGA”. Unlike the other model IGA, Model 2 IGA requires FFIs to report the FATCA-related information directly to the IRS and without any intermediaries.

Since the FFIs report all FATCA-related information directly to he IRS, they need to register with the IRS and sign an FFI agreement (which should reflect the specific changes to the model FATCA IGAs negotiated by the foreign jurisdiction).

Both Model FATCA IGAs Lead to Disclosure of Foreign Accounts Held by US Persons

Irrespective of the type of the agreement, it is important to remember that both model FATCA IGAs are designed to perform the same function – disclosure of foreign accounts held by US persons (directly or indirectly). This means that the spread of both types of model FATCA IGAs presents a direct threat to any undisclosed foreign accounts of US persons with potentially catastrophic consequences for these US persons, including potential criminal prosecution and willful FBAR penalties in excess of the balances of these secret accounts.

Contact Sherayzen Law Office for Help with Undisclosed Foreign Accounts

If you have undisclosed foreign accounts, please contact Sherayzen Law Office as soon as possible. Our international tax lawyers will first carefully review the facts of your case and identify the best voluntary disclosure options available to you.  Our international tax professionals will conduct your voluntary disclosure process from the beginning through the end, including the preparation all of the required legal documents and tax forms.

Contact Us Now to Schedule Your Confidential Consultation!