Dec. 16 (Bloomberg) -- Twelve governments have reached agreement with the U.S. Treasury on easing the reporting of foreign-held bank accounts by U.S. taxpayers, part of the Internal Revenue Service’s effort to combat offshore tax evasion.
The agreements will help implement the Foreign Account Tax Compliance Act, which as of July 1 will require that information about such accounts be supplied directly to the U.S. Similar accords have been reached in substance with 17 other jurisdictions, and talks on the deals are in advanced stages with many other countries, Bloomberg BNA reported.
The intergovernmental agreements -- known as IGAs -- are a critical part of compliance with the 2010 foreign account tax law, international tax lawyers said in interviews. Banks and other financial entities want to see as many IGAs as possible in effect as the July 1 deadline approaches.
“Financial institutions are looking at that and telling their jurisdictions we need to get this done,” said Manal Corwin, national leader of the international tax practice at KPMG LLP and a former Treasury official whose duties included focusing on the foreign accounts law, known as FATCA. “I think it has the impact of pushing this forward.”
FATCA requires U.S. financial institutions to impose a 30 percent withholding tax on payments made to foreign banks and other financial entities that don’t agree to identify and provide information on U.S. account holders. IGAs, in general, allow the foreign financial institutions to report the information to their own governments, which then would share the data with the IRS.
The U.S. government’s work with other countries and jurisdictions on the disclosure rules marks the growing movement toward global tax transparency, said Robert B. Stack, Treasury deputy assistant secretary for international tax affairs, in an interview.
“FATCA has been widely recognized as a global model for combating offshore tax evasion and promoting transparency” through developing common reporting standards and an intergovernmental approach,’’ Stack said. “We are pleased by this growing momentum in support of FATCA.”
Corwin said a “significant correlation” exists between the crafting of IGAs and progress toward global tax transparency.
“I think transparency and information exchange was accelerated and the IGAs provided an incentive for broader cooperation,” Corwin said.
The 12 agreements have been reached with the Cayman Islands, Costa Rica, Denmark, France, Germany, Ireland, Japan, Mexico, Norway, Spain, Switzerland and the U.K.
Bermuda, Italy and Hungary are among those that have initialed accords -— generally the last step before the pact is formally signed -— and Malta has concluded negotiations on an IGA, according to publicly available information.
Nations where foreign government representatives have said talks are progressing include Canada, Israel and the Czech Republic, while jurisdictions known for their financial industries, such as the Bahamas, the Virgin Islands and Belgium, have expressed their intent to enter into IGAs.
Other nations with which talks are continuing include Sweden, Belgium, Liechtenstein, Luxembourg and the Netherlands.
In New Zealand, although details of negotiations were unavailable, a spokeswoman told Bloomberg BNA that the government has recently introduced legislation to Parliament enabling the nation’s financial institutions to comply with any possible IGA.
“There is a lot more going on behind the scenes than is apparent,” said KPMG’s Corwin. “They’re working on it very hard.”
In November 2012, Treasury said it was in talks with more than 50 countries. Since then, officials have said the number of jurisdictions negotiating with Treasury has increased to more than 70.
Jonathan Jackel, senior counsel at Burt, Staples & Maner LLP, said many governments “seem a lot less resistant than they were at first. The trend is definitely in favor of seeing some movement” toward IGA’s.
He said the agreements “are a very important part of the process. It gives financial institutions in those countries a fair shot at complying with FATCA.”
Different versions of the IGAs include reciprocal ones, which require the U.S. to provide certain information in exchange for the data it gets from other governments.
Other agreements aren’t reciprocal and the information only goes from the foreign country to the U.S. The IGA with the Cayman Islands is a nonreciprocal pact.
In some versions, the foreign-based financial institutions are required to report account information directly to the IRS. Thus far, Japan and Switzerland have entered into that type of accord, while Bermuda has initialed one.
Dominick Dell’Imperio, a partner at PricewaterhouseCoopers LLP in Washington, said it is a positive sign that the agreements being negotiated are for the most part consistent, with caveats tailored to the situations of specific governments.
“It gives you the consistency of certainty,” he said.
Still, some banks and other financial entities continue to be worried about the July 1 deadline for reporting and withholding. Several major financial groups recently asked for six more months to comply, on top of the six-month extension provided by the government that set the July 1.
Last week, U.S. officials said there are no plans for another delay. “We’re sticking to the effective date,” Quyen Huynh, an attorney-adviser in Treasury’s Office of International Tax Counsel, said Dec. 12.
She also said the government is planning several pieces of FATCA guidance and other information soon.
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