France

Corporate - Other issues

Last reviewed - 16 September 2019

France and the United States sign bilateral agreement on the implementation of the Foreign Account Tax Compliance Act (FATCA)

France and the United States signed a bilateral intergovernmental agreement (IGA) intended to implement FATCA. FATCA was enacted by the United States in 2010 to combat offshore tax evasion by US persons. France, with the United Kingdom, Germany, Spain, and Italy, was an original member of the ‘G5’ countries that agreed with the United States to advance the principles of FATCA under the concept of bilateral IGAs in order to address many of the legal barriers faced by financial institutions in complying with FATCA.

The French government has committed to drafting local laws and regulations to implement FATCA among all financial institutions resident in France (including French branches of foreign companies). Broadly speaking, the banking, life insurance, and asset management industries will be most affected, but certain estate (patrimonial) vehicles, holding companies, as well as hedging, finance, and treasury centres of non-financial groups could also be impacted, depending on the nature of their activities.

As expected, the US-France IGA is based on the Model 1A version with an Annex II negotiated to include provisions specific to the local French market and that contains categories of French financial institutions qualifying for exempt beneficial owner or deemed-complaint status.

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

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

  • Inclusion of the ‘most favoured nation’ clause allowing adoption of certain provisions from other IGAs that may be more favourable to French financial institutions.
  • Consistent with Notice 2013-43, the timetable for implementation of FATCA has been synchronised 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 French IGA describes various classes of exempt beneficial owners and deemed-compliant financial institutions.
    • The deemed-compliant financial institutions described in Annex II are treated as Non-Reporting French Financial Institutions under the French IGA. In turn, these Non-Reporting French Financial Institutions are considered certified deemed-compliant FFIs under the US regulations and do not have to register to obtain a global intermediary identification number (GIIN).
    • Collective investment vehicles, including investment entities established in France that are regulated as collective investment vehicles, sociétés de crédit foncier and sociétés de financement de l’habitat, are Non-Reporting French Financial Institutions treated as deemed-compliant FFIs.
  • The asset management industry should benefit from an exemption related to employee savings plans and a special status that is intended to reduce the FATCA obligations of investment vehicles and management companies that can ensure the absence of US investors and non-participating financial institution customers.
  • The agreement also provides specific provisions for certain French institutions and financial products, including:
    • Exemption for certain local banks with an almost exclusively local client base. This could be beneficial to French institutions following the mutual banking model.
    • Most regulated savings products (savings books and savings plans), which are excluded from the definition of a financial account and will not be treated as US Reportable Accounts, whereas the share savings plan (PEA) remains within the scope of FATCA.
    • Products dedicated to retirement planning (Article 39, Article 82 , Article 83, Madelin, Madelin agricole, Perp, Pere, and Prefon), which are excluded from the definition of financial accounts and will not be treated as US Reportable Accounts.
    • Pension funds will also benefit from a specific exemption.

French financial institutions, as well as non-financial organisations with financial institutions within their groups, should be taking steps based on the IGA (and in some cases US Treasury Regulations) to ensure they are prepared to comply. Unofficial draft guidelines have been prepared regarding the US-France IGA. This draft is not binding on French tax authorities. Official guidelines were published on 5 August 2015.