By committing to strengthening financial stability and supporting banks and financial institutions by reducing the burden of meeting FATCA on THE DSPS, many partner countries have initiated or concluded igA negotiations with the United States. The United Arab Emirates (“United Arab Emirates”) and the United States reached a substantive agreement in May 2014 to include the United Arab Emirates on the list of legal systems to be treated as having an effect with an IGA. The United Arab Emirates has agreed to adopt Model 1B. The result of this decision is that FFI in the United Arab Emirates must meet the IGA requirements as of July 1, 2014. At present, the final form of the IGA is not yet complete, but it is likely that this should be done before the end of 2014. Foreign Account Tax Compliance Act (FATCA) is a U.S. law aimed at combating tax evasion by U.S. people. The intent behind the law is for foreign financial institutions (FFIs), i.e.
non-U.S. companies. Financial institutions identify U.S. individuals with assets abroad and report them to the Internal Revenue Service (IRS). To date, a large majority of FFIs in the Middle East region are complying with FATCA requirements (either by entering into a FATCA agreement directly with the IRS or by complying with the local inter-reliance agreement) due to potential commercial, reputational and financial risks (e.g. B, withholding and regulatory sanctions) for non-compliance. The key to the fight against tax evasion has been international tax cooperation and the effective exchange of information between countries. The Organisation for Economic Co-operation and Development (OECD) has been at the forefront of international efforts to promote all forms of information exchange, including on-demand, spontaneously and automatically, and to tackle basic erosion and profit shifting (BEPS) through testing of economic substances. The Government of the United Arab Emirates is firmly committed to the above-mentioned initiatives and has signed various international treaties and agreements with the United States and the OECD.
The obligations imposed by the FATCA regime do not take into account national legislation (for example. B data protection and privacy issues) that prohibit the exchange of information requested by the IRS. Therefore, even if it is willing to exchange information, an FFI may be in violation of local laws and subject to regulatory sanctions and possible litigation within the scope of their jurisdiction. Given the global scope of the FATCA regime and to address potential conflict with national laws, the U.S. Treasury has proposed the creation of an intergovernmental framework to allow compliance and reporting on intergovernmental agreements (IGAs). The IGAs have been modeled in two forms: Model 1 and Model 2. The two forms are different in the first place because of the reciprocity and reporting obligations. Model 1A requires a mutual relationship between the United States and the partner jurisdiction, where the FFI would be required in that partner jurisdiction to report to their respective regulatory authorities, which in turn would be notified to the IRS and vice versa.