Under the new guidelines, which were hotly anticipated by the finance industry and cement plans announced in February, governments will be able to choose between using either a “reciprocal” agreement or a “non-reciprocal” agreement, the first of which is modelled on deals struck between the US and France, Germany, Italy, Spain, and the UK.
Both agreements will establish a framework for reporting by financial institutions of certain account information to their respective tax authorities, followed by automatic exchange of information under existing bilateral tax treaties or tax information exchange agreements.
The US government department said both versions will also address the legal issues that had been raised in connection with FATCA and will “simplify its implementation for financial institutions”.
The reciprocal version of the agreement, which is only open to those countries with an existing income tax treaty or tax information agreement, will also provide for the US to exchange information currently collected on accounts held in US 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.
US Treasury secretary Tim Geithner said: “Today’s announcement 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. 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.”
Neil Chadiwck, technical marketing manager at Royal London 360° said the rules do offer clarification in some areas, but said more will be needed from the respective domestic tax authorities.
“Any jurisdiction signing up to such an agreement is going to have to produce significant guidance for their FFIs and undertake a ‘reluctant compliance function’ to ensure buy in,” said Chadwick.
“It cannot be assumed that all organisations in a FATCA Partner jurisdiction will interpret the IRS guidance in exactly the same way.
“I still think there are a lot of areas which are ‘grey’ at best and some industries are going to need more help if it’s ever going to work properly.”