United States and G5 Countries Release Model Intergovernmental Agreement Addressing Tax Evasion Measures Under FATCA
August 3, 2012
On July 26, 2012, the U.S. Treasury Department released a model intergovernmental agreement (“Model IGA”), developed cooperatively with France, Germany, Italy, Spain and the United Kingdom (the “G5 countries”), that lays out for the first time a detailed framework for intergovernmental cooperation to reduce tax evasion by U.S. taxpayers, under the U.S. “Foreign Account Tax Compliance” (“FATCA”) rules, and by partner country taxpayers. For financial institutions operating in a jurisdiction covered by an agreement, the Model IGA should eliminate or substantially reduce concerns about conflicts between FATCA and local bank secrecy, data protection and privacy laws, and also will ease their FATCA compliance burdens. U.S. financial institutions, on the other hand, face the prospect of increased tax compliance burdens as a result of the United States’ commitment to seek additional information about their account holders to provide to the partner country. The implications of the Model IGA for financial institutions in other countries are less clear, as it is uncertain whether the rules set forth in the Model IGA will be adopted into U.S. law or will be available only to partner country financial institutions. Finally, for multinational financial institutions, the Model IGA is likely to result in different rules in different jurisdictions, rendering compliance with FATCA more complex.