US Signs Competent Authority Agreements With UK, Australia
The Internal Revenue Service has entered into landmark Competent Authority Agreements with authorities in Australia and the United Kingdom to support the implementation of the Foreign Account Tax Compliance Act (FATCA).
The US has signed FATCA intergovernmental agreements with both of these nations. Each of these agreements provides that Competent Authorities in both states will “enter into an agreement or arrangement under the mutual agreement procedure provided for in [the jurisdictions’ existing double taxation agreement] in order to establish and prescribe the rules and procedures necessary to implement certain provisions in the IGA.”
The new CAAs lay down a framework for the automatic exchange obligations contained in the IGAs and other matters concerning FATCA’s implementation, including registration, confidentiality and data safeguards, costs, consultation, and modification.
The CAAs with Australia and the UK are the first such arrangements to be signed. However, the IRS – the United States’s Competent Authority, expects that numerous other CAAs with IGA jurisdictions will be signed in the near future.
“The signing of these CAAs marks another significant milestone in the international effort to gain proper reporting of offshore accounts and income,” said IRS Commissioner John Koskinen. “Together in partnership with other tax authorities, we are demonstrating how far we have come in the fight against offshore tax evasion.”
FATCA is intended to ensure that the US obtains information on accounts held abroad at foreign financial institutions (FFIs) by US persons. Failure by an FFI to disclose information on their US clients can result in a 30 percent withholding tax on payments of US-sourced income.
To address situations where foreign law would prevent an FFI from complying with the terms of a FFI agreement, and to ease their compliance burden, the United States has developed IGAs. Under the terms of each Model 1 IGA, FFIs report information on financial accounts held by US persons to their home CA, which then exchanges the information with the IRS.
