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July 26, 2012 at 09:48 AM
The Treasury Department released Thursday a model agreement developed with France, Germany, Italy, Spain and the U.K. to implement the information reporting and withholding tax provisions of the Foreign Account Tax Compliance Act (FATCA). The provisions target noncompliance by U.S. taxpayers using foreign accounts.
The model agreement has two different versions: a reciprocal version and a nonreciprocal version. Both provide a means for foreign banks to report financial account information to their own tax authorities, with such information to be automatically exchanged under existing bilateral tax treaties or tax information exchange agreements.
Both versions of the model resolve legal issues that were raised in connection with FATCA; they also simplify its implementation for financial institutions.
The reciprocal version, which is available only to partner countries—jurisdictions with which the U.S. has an income tax treaty or tax information exchange agreement in effect—not only provides a means for foreign banks to report on the assets held in their institutions by U.S. citizens, it also allows the IRS to share taxpayer information with a foreign government about its citizens’ assets held in the U.S. Congress must approve the use of the reciprocal agreement.
