Ffi Agreement Model 2

With respect to the analysis of source tax risk on cross-border transactions, in accordance with the Foreign Account Tax Compliance Act, the market has generally focused on the treatment of parties in jurisdictions that are considered a Model 1 intergovernmental agreement with the United States. Given that most of the major financial centres are located in IGA Model 1 countries (including China, France, Germany, Luxembourg, Singapore, the United Arab Emirates and the United Kingdom), this priority is largely understandable. However, there are significant differences in the way financial institutions are treated in the legal systems treated by a Model 2 IGA compared to financial institutions in Model 1 igA systems, particularly with respect to financial institutions operating in an agency or intermediary capacity. The Loan Market Association (LMA) has proposed a language that explicitly addresses the residual obligations of Model 2 FFI intermediaries in the context of lending. Under the LMA approach, a lender that does not provide accurate FATCA information to a Model 2 FFI intermediary (usually a facility agent) is required to compensate the Model 2 FFI product intermediary for any liability arising from this failure, including all penalties resulting from the failure of the Model 2 FFI, to honour the remaining obligations. Otherwise, while a Model 2 FFI intermediary may be able to recover the cost of a sanction under the general AML compensation rules, the costs are allocated by this approach to the specific lender responsible for the omission of the withholding representative, and not to all lenders (including those who have fulfilled their FATCA obligations). The Loan Syndications and Trading Association (LSTA) did not address this issue in its standard documentation, but this may be because, in most cases, LSTA credit contract officers operate atypically in the United States and have not been arranged. Craig Cohen is a senior counsel and John Hibbard is a partner at Allen -Overy LLP. In this article, the authors discuss the fatca withholding rules that apply to financial institutions in the intergovernmental legal orders of Model 2. FATCA requires foreign financial institutions (FFIs) to disclose information about the financial accounts of U.S.

taxpayers or foreign companies holding U.S. companies to the IRS.