Belgium and the US sign FATCA Intergovernmental Agreement

Written by Olivier Hermand 25 April 2014


On 23 April 2014, Minister of Finance, Koen Geens and US Ambassador, Mark Storella signed the long awaited bilateral Intergovernmental Agreement (IGA) intended to implement the Foreign Account Tax Compliance Act (FATCA). The IGA will provide needed clarity around the implementation of FATCA for the Financial Institutions (FIs) resident in Belgium and those with branches located in Belgium.

FATCA was enacted by the US in 2010 to combat offshore tax evasion by US persons.  The main purpose of FATCA is to have foreign FIs report specific information on certain accounts owned directly and indirectly by US persons to the US tax authorities.

The Belgian IGA is a Model 1 Reciprocal Agreement, meaning that Belgian FIs, within the meaning of the IGA, will report directly to the Belgian taxing authorities. The Belgian Tax Administration will then report to the Internal Revenue Service, so that the IRS can reconcile the reported information with data they have on US tax payers.

The Belgian Government has committed to drafting local laws and regulations to implement FATCA among all financial institutions resident in Belgian (including Belgian branches of foreign companies). Broadly speaking, the banking, life insurance and asset management industries will be most affected but certain other legal construction (hedging, finance and treasury centers) of non-financial groups could also be impacted depending on the nature of their activities.

The Annex II of the IGA Model I include provisions specific to the local Belgian market and contains categories of Belgian financial institutions qualifying for exempt beneficial owner or deemed-compliant status.

Compliance with FATCA’s due diligence, reporting and in some cases withholding requirements is necessary for foreign financial institutions to avoid suffering 30% withholding on certain US source income and payments. The Belgian IGA is intended to simplify the FATCA requirements for Belgian financial institutions, but in most cases still requires significant efforts to maintain compliance.

The following are key points specific to the US-Belgium IGA to consider:

  • Inclusion of the “most favoured nation” clause allowing adoption of certain provisions from other IGAs that may be more favourable to Belgian financial institutions.
  • Consistent with Notice 2013-43, the timetable for implementation of FATCA has been synchronized with the intended amendments to the US Treasury Regulations, starting with the entry into force of key provisions effective 1 July 2014.

Annex II of the Belgian IGA

Annex II of the Belgian IGA lists those entities that are treated as exempt beneficial owners or deemed-compliant financial institutions, also referred to as Non Reporting Belgian Financial Institutions. These Non-Reporting Belgian Financial Institutions do not have to register to obtain a GIIN and should generally have no reportable obligations on financial accounts. The following entities (among others) will qualify as exempt beneficial owner under Annex II of the Belgian IGA:

  •  “Treaty-Qualified Retirement fund” are funds established in Belgium and operate principally to administer or provide pension or retirement benefits. Such funds, commonly referred to as OFP’s, will qualify for this category provided they meet the condition to fall under the Convention between the United States and Belgium for the Avoidance of Double taxation and the Prevention of Fiscal Evasion with respect to Taxes On income signed on November 27, 2006.
  • “Belgian savings funds” as defined by Article 145/15 of the Income Tax Code 1992 (fonds d’épargne pension/pensioenfondsen).
  • Local banks with an almost exclusively local client base. This could be beneficial to certain Belgian institutions.

Furthermore, Annex II lists products which are excluded from the definition of a financial account therefore not treated as reportable accounts, more specifically:

Retirement and pension accounts which includ

  • Occupational pensions subscribed by the employer or the self-employed ;
  • Retirement Savings Account (contrat d’épargne-pension/pensioenspaarcontract) or Life Insurance Contract (contrat d’assurance vie/levensverzekeringsovereenkomst)falling under Articles 145-1, 5° and Articles 145-8 to 145-16 of the Income Tax Code 1992 (“Code des impôts sur les revenus 1992” / “Wetboek van de inkomstenbelastingen 1992
  • Long-term savings products (épargne à long terme/langetermijnspaarplannen) falling under Articles 145-1, 2° and 145-4 of the Income Tax Code 1992 ;

Following accounts will also benefit from the exemption:

  • Shareholder’s register for nominal shares as required by the Belgian Company Code under Article 357 and 463.
  • Stock-remuneration plans qualifying under the Belgian law of May 22, 2001 (“Loi relative aux régimes de participation des travailleurs au capital et aux bénéfices des sociétés” / “Wet van 22 mei 2001 betreffende de werknemersparticipatie in het kapitaal en in de winst van de vennootschappen”).
  • Stock-Options as referred under the Belgian Plan for Employment Act of March 26, 1999 (“Loi du 26 mars 1999 relative au plan d’action belge pour l’emploi 1998 et portant des dispositions diverses” / “Wet van 26 maart 1999 betreffende het Belgisch actieplan voor de werkgelegenheid 1998 en houdende diverse bepalingen”).

Next steps

Reporting Belgian Financial Institution should register on the portal of the IRS by May 5th 2014 in order to be included in the first list of registered foreign FI’s which will be published by the IRS on 2 June 2014 (although registration may be done after this deadline).

However, before entering any information into the IRS online registration system, each Belgian entity should perform an analysis in order to determine its FATCA status. In particular, within a group, it will be necessary to identify all entities which need to register. This should take into account the identification of “expanded affiliate groups” (FATCA groups) or sponsoring relationships, and the identification of a Local FI.

Another important upcoming deadline for Reporting Belgian Financial Institution is 1 July 2014, date on which the new client on-boarding process should be in place.

The next step is for the Belgian government to implement local laws adopting the provisions of the IGA. Given the rapidly approaching deadline of 1 July 2014, Belgian financial institutions, should be taking the necessary steps to ensure they are prepared to comply.

How can PwC help?

PwC welcomes the opportunity to meet with you to discuss our methodology and approach to help prepare you for compliance with FATCA. PwC’s involvement in supporting many large and small Belgian financial institutions has helped us refine our methodology, develop lessons learned and success factors, and enhance tools to address FATCA. In addition, PwC is closely involved in drafting the future Belgian Guidance.

We can provide the benefit of our experience in conducting FATCA projects, leveraging effective governance structures to accelerate our work and assessing risk frameworks within various product types, distributions channels and administrative functions pertinent to your industry.

Belgian Contacts:

 

 

 

Geneviève Colot

+32 710 4663

genevieve.colot@be.pwc.com

Olivier Hermand

+32 710 4416

olivier.hermand@be.pwc.com

Patrice Delacroix

+32 710 7401

patrice.delacroix@be.pwc.com

 

US Contacts:

 

 

 

Dominick Dell’Imperio

(646) 471-2386

dominick.dellimperios@us.pwc.com

Jon Lakritz

(646) 471-2259

jon.w.lakritz@us.pwc.com

Robert Limerick

(646) 471-7012

robert.limerick@us.pwc.com

Candace Ewel

(202) 312-7694

candace.b.ewell@us.pwc.com

For more information

The press releases by the French and US governments can be accessed below