Last week, the Department of the Treasury announced that six more countries have signed agreements pledging tax transparency sought by the Foreign Account Tax Compliance Act (FATCA). These countries are Bermuda, Malta, the Netherlands, and three United Kingdom Crown Dependencies: Jersey, Guernsey, and the Isle of Man.
As we have reported here before, FATCA requires U.S. financial institutions to withhold certain payments made to foreign financial institutions (“FFI”) that do not agree to report U.S. taxpayer account information to the IRS. An FFI can enter into an agreement directly with the IRS in order to prevent those withholdings. Or, as these six countries have done, FFIs may become compliant through an intergovernmental agreement signed between the U.S. and the home country.
Bermuda signed a Model 2 agreement where FFIs in the Bermuda can report information about consenting U.S. accounts directly to the IRS. Information on non-consenting accounts can be reported government-to-government upon request.
Malta, the Netherlands, Jersey, Guernsey, and the Isle of Man each signed Model 1A agreements where FFIs will provide account information to their home governments, which will report that information to the IRS. The U.S. has agreed to reciprocity under these agreements, meaning that the U.S. will provide similar account information about individuals from each of these countries that have accounts in the U.S. to their respective countries.
Eighteen countries have now entered into agreements relating to FATCA compliance [all FATCA agreements can be found here], and the Treasury Department said it has reached agreements in substance with 11 other countries. We will continue to post updates as further agreements are announced.