The Organization for Economic Cooperation and Development (OECD) has welcomed the conclusion of negotiations between the United States and five European Union member states on a new model international tax agreement aimed at cutting the cost for financial institutions of compliance with the United States Foreign Account Tax Compliance Act (FATCA).
Welcoming the new agreement, OECD Secretary-General Angel Gurria said: “I warmly welcome the co-operative and multilateral approach on which the model agreement is based. We at the OECD have always stressed the need to combat offshore tax evasion while keeping compliance costs as low as possible. A proliferation of different systems is in nobody’s interest. We are happy to redouble our efforts in this area, working closely with interested countries and stakeholders to design global solutions to global problems to the benefit of governments and business around the world.”
FATCA, enacted by Congress in March 2010, will require foreign financial institutions (FFIs) to disclose information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest. Failure by an FFI to disclose information would result in a requirement to withhold 30% tax on US-source income. Presently, it is anticipated that FFIs will only need to begin reporting income received by these clients by January 1, 2016, in respect of the calendar year 2015. Despite the lengthy transitional period envisaged, FFIs have warned of the substantial compliance burden attached to the reporting requirements.
Developed by the United States, France, Germany, Italy, Spain and the United Kingdom, the new agreement has been designed to cut the cost of compliance for FFIs by allowing these entities to transmit relevant data to a central domestic authority. The data would then be automatically exchanged with the United States tax authority, the Internal Revenue Service. The United States has also agreed to reciprocate with signatory nations, requiring US FFIs to also provide relevant information to these nations' authorities.
Following the conclusion of negotiations towards the model agreement, the nations have asked the OECD to develop, with interested countries, an adapted version of the model agreement to create a common model for automatic exchange of information among more participants, and also to develop reporting and due diligence standards for financial institutions..
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