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Model inter-governmental agreement for foreign financial institutions to use in implementing FATCA reporting requirements

July 26, 2012 | No. 2012-351


The U.S. Treasury Department today released a model inter-governmental agreement for foreign governments to use so that foreign financial institutions can implement and comply with FATCA information requirements.

Foreign financial institutions complying with the model agreement’s provisions will not be subject to withholding under Code section 1471.

Model agreements

There are two versions of the model agreement—a reciprocal version and a nonreciprocal version. 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 model agreement—Model Intergovernmental Agreement to Improve Tax Compliance and to Implement FATCA—acknowledges that:

  • FATCA has raised a number of issues that certain foreign financial institutions may not be able to comply with because of domestic legal impediments.
  • The governmental signatories to the model agreement are committed to working together over the longer term to achieve common reporting and due diligence standards for financial institutions.
  • The United States needs to coordinate the reporting obligations under FATCA with other U.S. tax reporting obligations of the foreign financial institutions to avoid duplicative reporting.
  • An inter-governmental approach for FATCA implementation would address legal impediments and reduce burdens for the foreign financial institutions.

The goal of the model agreement is an agreement to improve international tax compliance and provide for the implementation of FATCA based on domestic reporting and automatic exchange of tax information under an applicable income tax treaty or tax information exchange agreement.

Read a related Treasury (July 26) release: Treasury Releases Model Intergovernmental Agreement for Implementing the Foreign Account Tax Compliance Act to Improve Offshore Tax Compliance and Reduce Burden

Exchange of information provisions

The model agreement provides that the foreign government will obtain certain specified information with respect to all “U.S. reportable accounts” and will annually exchange this information with the United States.

The model agreement sets forth the type of information to be obtain and exchanged, including:

  • The name, address, and U.S. taxpayer identification number (TIN) of each “specified U.S. person” that is an account holder of a non-U.S. entity
  • The account number or functional equivalent
  • The name and identifying number of the foreign financial institution
  • The account balance or value (including cash value or surrender value of insurance contracts)
  • Total gross amount of interest, dividends, other income, and proceeds from sale or redemption of property in the case of any custodial account
  • Total amount of interest paid or credited in the case of any depository account
  • Other amounts of any redemption payments made during the calendar year or other appropriate reporting period

The model agreement sets forth the time and manner for the exchange of information, with specific provisions for information to be exchanged for 2013, 2014, 2015 and 2016 and later years.

The model agreement includes guidelines for determining when there has not been compliance and sets forth enforcement measures.

One annex to the model agreement concerns due diligence obligations for identifying and reporting on U.S. reportable accounts and on payments to certain nonparticipating financial institutions.

A second annex concerns non-reporting foreign financial institutions and products.

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ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

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