On February 8, 2012, the Internal Revenue Service (“IRS”) announced the release of proposed regulations (the “Proposed Regulations”) for the next phase of implementing reporting and withholding provisions of the HIRE Act (commonly known as the Foreign Account Tax Compliance Act, or FATCA, provisions) that target noncompliance by U.S. taxpayers using foreign accounts. Concurrently with the issuance of the Proposed Regulations, the United States, France, Germany, Italy, Spain, and the United Kingdom issued a joint statement outlining a potential intergovernmental framework for FATCA. Under the framework, much of the information required by FATCA would be collected directly by foreign governments and shared with the United States pursuant to existing bilateral tax treaties. Such an approach, if adopted, could eliminate withholding obligations and the requirement to enter into a separate disclosure compliance agreement for foreign financial institutions (“FFIs”) organized in partner countries.

In support of this approach, Treasury released final regulations on April 17, 2012, that require the reporting of U.S. bank deposit interest paid to nonresident aliens. These final regulations will facilitate intergovernmental cooperation on FATCA implementation by better enabling the IRS, in appropriate circumstances, to reciprocate by exchanging information with foreign governments for tax administration purposes. The preamble to the final regulations notes that a foreign jurisdiction’s willingness to share information with the IRS to combat offshore tax evasion by U.S. taxpayers depends, in large part, on the ability of the IRS to exchange information that will assist that jurisdiction in combating offshore tax evasion by its own residents. The reporting requirement under the final regulations is effective for payments of U.S.-source deposit interest made on or after January 1, 2013, and is separate from reporting requirements imposed under the FATCA regime. Information sharing under the regulations is limited to countries with which the United States has a tax information exchange agreement (a “TIEA”), implying that Treasury may not enter into a FATCA intergovernmental agreement with a country that does not have in effect a TIEA. The IRS released Revenue Procedure 2012-24 with the final regulations, which includes a list of countries with which the United States has TIEAs.