Taxpayers with foreign accounts will
want to take note of an agreement recently developed by the U.S. and
several other countries, including France, Germany and the U.K. The
"model intergovernmental agreement" is intended to
implement FATCA, or the Foreign Account Tax Compliance Act. FATCA
requires foreign financial institutions to report to the IRS
information on accounts or insurance or annuity contracts with values
above set amounts, and that are held by U.S taxpayers, or by foreign
entities in which U.S taxpayers hold a substantial ownership
interest.
The purpose of FATCA, which was signed
into law in 2010, is to reduce the risk that U.S. taxpayers use
accounts outside the U.S. to evade taxes. The recent
agreement is an important step to combating tax evasion based on the automatic exchange of
information.
For foreign financial institutions,
FATCA has presented serious administrative and legal challenges.
Among
other requirements, it asks them to identify U.S. accounts, and
then report to the IRS the account holder's name, address and
taxpayer identification number, the account number and balance, and
in some cases, gross receipts and withdrawals from the account.As
the intergovernmental agreement itself states, "FATCA has
raised a number of issues, including that FATCA Partner financial
institutions may not be able to comply with certain aspects of FATCA
due to domestic legal impediments."
For the moment, two versions of the agreement were
released: reciprocal
and non-reciprocal. Both establish a framework within which
financial institutions can report account information to their own
tax authorities, which then will be automatically exchanged under
existing bilateral tax treaties or tax information exchange
agreements. They also call for the development of a common reporting
and exchange model.
The reciprocal version of the model, as
its title suggests, also provides for the United States to exchange
the information it currently collects on accounts held in U.S.
financial institutions by residents of partner countries. It states
the U.S.' commitment to improve transparency and enhance the exchange
relationship with its partner countries, by pursuing regulations and
supporting legislation that would achieve equivalent levels of
reciprocal automatic exchange. This version will be available to some
countries with which the U.S. has an income tax treaty or tax
information exchange agreement.
In France, Germany, Italy, Spain, U.K. and the U.S. released
a communique, which endorses the model agreement and calls for
bilateral agreements based on the model. It reads, in part, "France,
Germany, Italy, Spain, the United Kingdom and the United States will,
in close cooperation with other partner countries, the OECD and where
appropriate the EU, work towards common reporting and due diligence
standards to support a move to a more global system to most
effectively combat tax evasion while minimizing compliance burdens."
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