As reported yesterday, the U.S. Treasury Department released two versions of a “model intergovernmental agreement” to 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.
In a U.S. Treasury press release, Treasury Secretary Timothy Geithner stated that this release:
… is an important milestone in our joint efforts to combat offshore tax evasion and make our tax systems more efficient and fair. This agreement implements FATCA in a way that is targeted and effective, while also providing a foundation for further international coordination.
From the British Bankers Association, the following statement was made:
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.
As was announced in a joint statement (February 8, 2012)—see
TaxNewsFlash 2012-82—issued by the governments of the United States, France, Germany, Italy, Spain, and the United Kingdom, the FATCA rules impose information reporting requirements on foreign financial institutions (FFIs) when local law imposes legal restrictions on reporting, withholding, and account closure requirements.
The February 2012 joint statement announced an alternative intergovernmental approach to FATCA implementation that would address the legal impediments to compliance, simplify practical implementation, and reduce FFI costs.
Both versions of the model intergovernmental agreements 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.
In addition, both versions of the agreement address the legal issues that had been raised in connection with FATCA, and simplify its implementation for financial institutions.
The different versions are:
Reciprocal version: This version 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 IRS have determined that the recipient government has in place robust protections and practices so 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.
Nonreciprocal version: This version does not provide for the United States to exchange information currently collected on accounts held in U.S. financial institutions by residents of partner countries.
It is interesting to note that in both versions of the model agreement, the automatic exchange of information happens under existing bilateral tax treaties or tax information exchange agreements. This implies that neither version is usable by countries that do not have bilateral tax treaties or tax information exchange agreements with the United States.
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