FATCA Intergovernmental Arrangements

On July 26, 2012, the U.S. Department of the Treasury published a model intergovernmental agreement to implement the Foreign Account Tax Compliance Act (“FATCA”). FATCA targets non-compliance by U.S. citizens and residents using foreign accounts. The agreement was developed in consultation with Germany, France, Italy, Spain and the U.K. The U.S. has also entered into similar agreements with Switzerland and Japan and has entered into negotiations with several Nordic countries. The Treasury has released two versions of the agreement which include a reciprocal and non-reciprocal version. The reciprocal version entered into with Germany and others requires that financial account information be released on a reciprocal basis.
Treasury Secretary Timothy Geithner described the release of the agreement as “an important milestone in our effort to combat tax evasion and make our system more efficient and fair.” However, the unintended consequences for financial institutions and U.S. citizens and residents living and banking abroad could be consequential.
Germany and other countries have insisted on reciprocity with the U.S. in the release of financial information concerning their respective citizens and residents. The result will be significant compliance costs for U.S. institutions as they will have to identify and report information for customers from various countries. In Europe, financial institutions have are already anticipated greater compliance costs and have begun notifying U.S. citizens and residents that they are no longer welcome as customer. U.S. citizens and residents living and banking abroad now face limited access to credit in the form of mortgages, business loans and/or simple banking features such as checking. The U.S. taxes its residents and citizens on a world-wide basis and as a result of FATCA’s implementation; the U.S. is seeing increasing numbers of applications from individuals seeking to renounce their U.S. citizenship and residency status.
For more information regarding FATCA and/or renouncing your U.S. citizenship or residency, please contact one of our FATCA specialist.