Friday, July 27, 2012

Treasury and EU Countries Develop Compliance Framework for FATCA Compliance

The  U.S. Treasury has developed  a model intergovernmental agreement with EU partners  to implement the information reporting and withholding tax provisions of the Foreign Account Tax Compliance Act  (FATCA). The model agreement was developed in consultation with France, Germany, Italy, Spain, and the United Kingdom and marks an important step in establishing a common approach to combating tax evasion based on the automatic exchange of information.  These five countries, along with the United States, will, in close cooperation with other partner countries, the OECD, and, when appropriate, the European Commission, work towards common reporting and due diligence standards in support of a more global approach to comply with FATCA.
There are two versions of the model agreement, a reciprocal version and a nonreciprocal version, which both versions establish a framework for reporting by financial institutions 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 financial institutions.
The reciprocal version of the model also provides for the United States to exchange information currently collected on accounts held in U.S. financial institutions 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 United States.  This version of the model agreement will be available only to jurisdictions with whom the United States has in effect an income tax treaty or tax information exchange agreement and with respect to whom the Treasury Department and the Internal Revenue Service (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.  The United States will make this determination on a case by case basis.
FATCA was enacted in 2010 by Congress as part of the Hiring Incentives to Restore Employment (HIRE) Act. FATCA requires foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. FATCA is an important part of the U.S. government’s effort to improve tax compliance.