The US Treasury has revealed two model agreements that countries can sign to provide financial firms, including private equity and private real estate houses, a way to report tax information on any US investors through their local authorities.
Countries are being offered a “reciprocal” tax information exchange agreement that satisfies the controversial US Foreign Account Tax Compliance Act (FATCA) or a “non-reciprocal” version. Treasury, however, warned that a reciprocal agreement that provided its foreign counterparts information on US assets held by foreign investors would need approval from the US Congress.
One of the biggest questions surrounding enforcement of FATCA was how non-US financial firms could provide Treasury with key financial details of their US investors without breaching local data privacy laws. The “intergovernmental” model agreements are meant to address those legal concerns by creating automatic information exchange agreements based on existing bilateral tax treaties or tax information exchange agreements.
The model agreements were written in consultation with key European trading partners, the Organization for Economic Cooperation and Development and, at times, the European Commission.
We appreciate that France, Germany, Italy, Spain and the United Kingdom were among the first jurisdictions to join us in this important effort and we look forward to quickly concluding bilateral agreements based on today's model
“This agreement implements FATCA in a way that is targeted and effective, while also providing a foundation for further international coordination,” said Treasury Secretary Tim Geithner in a statement issued Thursday. “We appreciate that France, Germany, Italy, Spain and the United Kingdom were among the first jurisdictions to join us in this important effort and we look forward to quickly concluding bilateral agreements based on today's model.”
Other countries to have expressed interest in entering a FATCA agreement include the Cayman Islands, Ireland and the Netherlands – three popular fund domiciles for private equity firms.
Treasury said its reciprocal model agreement only would be available to countries that have signed certain tax information exchange agreements with the US and have in place “robust protections and practices to ensure that the information remains confidential and that it is used solely for tax purposes.” That determination will be made on a case by case basis, Treasury said.
FATCA, signed into law in 2010, will charge a 30 percent withholding tax on non-compliant firms beginning in 2014.