The Organization for Economic Cooperation and Development has released its model agreement for international cooperation on tax compliance, a joint effort led by the United States to ease compliance with the nettlesome Foreign Account Tax Compliance Act.
FATCA, as the law is known, was enacted in the United States in 2010 and requires far more disclosure of U.S. funds held in overseas accounts, so U.S. authorities can collect taxes due. The Treasury Department has been flummoxed by the details of implementing FATCA ever since, as it tries to win support from foreign financial institutions and their governments.
The OECD plan is the result of earlier consultations started this spring. The plan was drafted by the United States, France, Germany, Italy, Spain and Britain, and specifies how automatic, reciprocal exchange of information among goverments can work. It includes the development of reporting and due diligence standards for financial institutions.
There are two versions of the model agreement, a reciprocal version and a nonreciprocal version. Both establish a framework for reporting by financial institutions of certain financial account information to their respective tax authorities, followed by automatic exchange of such information under existing bilateral tax treaties or tax information exchange agreements. Both versions of the model agreement also address the legal issues that had been raised in connection with FATCA, and simplify its implementation for financial institutions.
As a next step, the OECD will organise, in cooperation with the Business and Industry Advisory Committee (BIAC) to the OECD, a briefing session on the “Model Intergovernmental Agreement on Improving Tax Compliance and Implementing FATCA” at OECD headquarters in Paris in September. The OECD will then design common systems to reduce compliance costs as much as possible.
To ease the implementation burden, Treasury and the IRS have already proposed long time lines for account and transaction reporting to get under way. Financial institutions would begin some basic identity reporting on account holders in 2013, but would have until 2016 to begin reporting on income payments and until 2017 to begin reporting on specific transactions.