The Treasury Department on July 26 released a model intergovernmental agreement to facilitate compliance with the Foreign Account Tax Compliance Act (FATCA) as enacted in the Hiring Incentives to Restore Employment (HIRE) Act of 2010 (P.L. 111-147 ). A senior Treasury official told reporters in Washington, D.C., that much-anticipated FATCA final regulations are expected to be issued this autumn.
Disclosure and Reporting
FATCA generally requires foreign financial institutions to report directly to the IRS information about financial accounts held by U.S. taxpayers, or held by foreign entities in which U.S. taxpayers hold a substantial ownership interest. A foreign financial institution must enter into an agreement with the U.S. by June 30, 2013. Foreign financial institutions that do not provide information about U.S. account holders would be required to withhold and pay over 30 percent of any payments of U.S.-source income to those accounts.
In February, the Treasury Department announced that it was discussing FATCA implementation with France, Germany, Italy, Spain and the United Kingdom (U.K.). “The model agreement was developed in consultation with the five countries and establishes, as promised, an intergovernmental framework to implement FATCA,” the Treasury official said. Japan and Switzerland have also entered into discussions with the U.S. about FATCA implementation (TDNR TG-1618 , TDNR TG-1619 ; TAXDAY, 2012/06/22, T.1 ).
Under the model agrement, the foreign government generally will agree to obtain information from financial institutions about accounts held by U.S. account holders, the Treasury official explained. Once the government has obtained the information, it will exchange the information with the U.S.
There are two versions of the model agreement: a reciprocal version and a nonreciprocal version. The reciprocal version of the model agreement is only available to jurisdictions with whom the U.S. has an income tax treaty or a tax information exchange agreement. Additionally, the foreign jurisdiction must have robust protections and practices to ensure that the information remains confidential and is used only for tax purposes.
“The model agreements standardize financial account reporting by foreign governments to the IRS. Taxpayers that hold financial accounts in countries that entered into an agreement with the U.S. will …be exempt from the 30-percent mandatory withholding that will be required on foreign bank accounts held in countries where there is no agreement with the U.S.,” Kristin Esposito, technical manager, American Institute of Certified Public Accountants (AICPA), told CCH.
The U.S. and the five countries issued a joint communiqué welcoming the model intergovernmental agreement and anticipating its speedy implementation. “Today’s announcement is an important milestone in our joint efforts to combat offshore tax evasion and make our tax systems more efficient and fair,” Treasury Secretary Timothy F. Geithner said in a statement. In the U.K., a government spokesperson said in a statement that the U.K. “will work to conclude negotiations with the U.S. and sign the intergovernmental agreement as soon as possible.” Angel Gurría, secretary general, Organisation for Economic Co-operaton and Development (OECD) said in a statement, “I warmly welcome the co-operative and multilateral approach on which the model agreement is based.”
Since February, the U.S. has received numerous inquiries from other countries about FATCA, the Treasury official reported. “Now that we have a model intergovernmental agreement, we are looking to move forward with other countries.”
The Treasury Department and the IRS issued proposed FATCA regulations in February (NPRM REG-121647-10 ; TAXDAY, 2012/02/09, I.1 ). The Treasury has received many comments and final regulations are being written. “We are hoping for the fall,” the Treasury official predicted after being asked when the final regulations will be published.
By George L. Yaksick, Jr., CCH News Staff
Treasury Department News Release, TDNR TG-1653, 2012FED ¶46,415
Joint Communique by France, Germany, Italy, Spain, the United Kingdom and the United States on the Occasion of the Publication of the Model Intergovernmental Agreement to Improve Tax Compliance and Implement FATCA, 2012FED ¶46,416
Model Intergovernmental Agreement to Improve Tax Compliance and to Implement FATCA, 2012FED ¶46,417
Model Intergovernmental Agreement to Improve Tax Compliance and to Implement FATCA [Nonreciprocal Version], 2012FED ¶46,418
Code Sec. 1471
CCH Reference – 2012FED ¶32,887.35
Tax Research Consultant
CCH Reference – TRC FILEBUS: 9,108.