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US Treasury Issues Model Intergovernmental FATCA Agreement

by Mike Godfrey, Tax-News.com, Washington

30 July 2012


The United States Treasury Department has published a model intergovernmental agreement to implement the information reporting and withholding tax provisions of the Foreign Account Tax Compliance Act (FATCA), together with a joint communique with France, Germany, Italy, Spain and the United Kingdom endorsing its text.

FATCA was enacted by Congress in March 2010 and is intended to ensure that the US tax authorities obtain information on financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest, with foreign financial institutions (FFIs). Failure by an FFI to disclose information would result in a requirement to withhold 30% tax on US-source income.

While FFIs will be able to register through an online system that will become available by January 1, 2013, and institutions with US clients will be required to report basic account details for 2013 and 2014 by January 1, 2015, it is currently envisaged that the income of those clients will not need to be reported until January 1, 2016, with respect to calendar year 2015.

FFIs across the world (including banks, investment funds and insurance companies) have all expressed concern about the legislation, in particular the costs of compliance and penalties that will ensue in case of non-compliance.

When, in February this year, the Treasury and the IRS issued their latest version of the FATCA regulations, it was also announced that agreements with France, Germany, Italy, Spain and the UK to pursue government-to-government frameworks for implementing FATCA had been reached, as an important step toward addressing legal impediments to FFIs’ ability to comply with the regulations.

An exemption from FATCA was not contemplated for any jurisdiction, but instead a model for information sharing is offered based on existing bilateral tax treaties and allowing FFIs to report the necessary information to their respective governments rather than to the IRS.

As a result of their FATCA discussions, it has been further confirmed that the five partner countries, along with the US, will, in close cooperation with other partner countries, the Organization for Economic Cooperation and Development, and, when appropriate, the European Commission, “work towards common reporting and due diligence standards in support of a more global approach to combating tax evasion effectively while minimizing compliance burdens”.

“(The announcement of the model agreement) is an important milestone in our joint efforts to combat offshore tax evasion and make our tax systems more efficient and fair,” said US Treasury Secretary Tim Geithner. “(The model) agreement implements FATCA in a way that is targeted and effective, while also providing a foundation for further international coordination.”

“We appreciate that France, Germany, Italy, Spain and the UK were among the first jurisdictions to join us in this important effort and we look forward to quickly concluding bilateral agreements based on the model,” he added.

The model agreement is accompanied by a joint communique with the five partner countries, endorsing the model agreement and calling for a speedy conclusion of bilateral agreements based on it.

There are two versions of the model agreement - a reciprocal version and a non-reciprocal version. Both versions establish a framework for reporting by FFIs of certain financial account information to their respective tax authorities, followed by automatic exchange of such information under existing bilateral tax treaties or tax information exchange agreements. Both versions of the model agreement also address the legal issues that had been raised in connection with FATCA, and simplify its implementation for FFIs.

The reciprocal version of the model also provides for the US to exchange information currently collected on accounts held in US FFIs by residents of partner countries, and includes a policy commitment to pursue regulations and support legislation that would provide for equivalent levels of exchange by the US.

That version of the model agreement will be available only to jurisdictions with whom the US has in effect an income tax treaty or tax information exchange agreement and with respect to whom the Treasury Department and the IRS have determined that the recipient government has in place robust protections and practices to ensure that the information remains confidential and that it is used solely for tax purposes.

A comprehensive report in our Intelligence Report series, examining in depth the situation of offshore transparency and secrecy in a number of the most prominent jurisdictions, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report2.asp
TAGS: compliance | tax | investment | European Commission | tax information exchange agreement (TIEA) | tax compliance | law | banking | insurance | investment funds | United Kingdom | offshore | agreements | legislation | offshore banking | withholding tax | France | Germany | Italy | Spain | United States | Europe

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