The US Treasury Department on Thursday released a model intergovernmental agreement designed to implement the information-reporting and withholding-tax provisions in the Foreign Account Tax Compliance Act (FATCA), which was enacted by Congress in 2010 to require foreign financial institutions (FFIs) to report to the government information about financial accounts held by US taxpayers or by foreign entities in which US taxpayers hold a substantial interest.
France, Germany, Italy, Spain, and the United Kingdom all participated in developing the model agreement and have agreed to work, in cooperation with other partner countries, the Organisation for Economic Co-operation and Development, and the European Commission, toward establishing reporting and due diligence standards to fight tax evasion with less burdensome compliance requirements. The five countries also endorsed the model agreement and called for the quick adoption of bilateral agreements based on the model.
Two versions of the agreement were released—a reciprocal one and nonreciprocal one. Both versions establish a framework for financial institutions’ reporting certain financial account information to their tax authorities and address legal issues that complying with FATCA had raised in various countries.
The reciprocal agreement was drafted to be used only in countries with which the United States has an income tax treaty or information exchange agreement and for which Treasury and the Internal Revenue Service have determined the government has sufficient protections to ensure the information is kept confidential and is used only for tax purposes. The United States will determine which countries qualify on a case-by-case basis.
The reciprocal version of the agreement provides for the United States to exchange information currently collected on accounts in US financial institutions held by partner countries’ residents and also makes a commitment to pursue regulations and support legislation to enable equivalent levels of information exchange by the United States. The nonreciprocal version does not require the United States to provide information on US accounts.
—Sally P. Schreiber (email@example.com) is a CGMA Magazine senior editor.
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