U.S., 5 Others Strike Agreement to Combat Offshore Tax Evasion
07/26/2012| 09:24am US/Eastern
--Treasury releases model agreement to obtain U.S. taxpayer information through foreign governments
--One version of agreement requires the U.S. to exchange information about foreigners that it collects from domestic banks
--Agreement developed with U.K., France, Germany, Spain and Italy
(Adds details about Thursday's agreement starting in the third paragraph and additional background throughout.)
By Eric Morath
WASHINGTON--The U.S. Treasury released a model agreement struck with five European nations Thursday that will allow for the enforcement of a law that targets offshore tax evasion.
The agreement, which still must be finalized, would create a new global regulatory system to prevent Americans from dodging taxes through foreign accounts, including a plan to obtain U.S. taxpayer information through foreign governments.
One version of the model released Thursday would require the U.S. to exchange information about foreigners that it collects on accounts held in domestic financial institutions, the Treasury said.
The provisions developed alongside the U.K., France, Germany, Spain and Italy are essential to the U.S. enforcing the Foreign Account Tax Compliance Act, passed in 2010.
The so-called Fatca rules, require foreign financial institutions to start reporting detailed information about U.S. account holders to the Internal Revenue Service in coming years. If the firms don't comply, they could face U.S. tax penalties.
The negotiations among the six countries created two versions of the agreement. The "reciprocal version" includes a policy commitment for the U.S. to pursue regulations and legislation that would provide for equivalent levels of exchange as it demands from other countries. Treasury said that version will be available to certain governments, on a case-by-case basis.
Thursday's model agreement "is an important milestone in our joint efforts to combat offshore tax evasion and make our tax systems more efficient and fair," Treasury Secretary Tim Geithner said in statement.
Mr. Geithner said the model agreement allows Fatca to be implemented in a "targeted and effective" way.
Banks have expressed concerns about the burdens the law creates.
Both versions of the agreement, however, allow for foreign financial institutions to report the necessary information to their respective tax authorities, helping to avoid duplicative efforts. Then the information would be subject to exchange under existing bilateral tax treaties or similar deals.
Thursday's model builds upon a commitment made by the six countries in February, but could be followed by other countries as well. Last month, Treasury announced deals with Japan and Switzerland to allow banks in those countries to comply with law.
Write to Eric Morath at firstname.lastname@example.org
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