| WASHINGTON/BRASILIA, March 21
WASHINGTON/BRASILIA, March 21 The United States
and Brazil are moving toward closer cooperation on fighting tax
evasion, with Brazil recently ratifying a formal tax information
exchange agreement between the two countries, tax professionals
said on Thursday.
After languishing in the Brazilian Senate for six years, the
agreement, which provides for limited sharing of tax
information, was approved last week, thus opening the door to a
pact on the more comprehensive U.S. Foreign Account Tax
Compliance Act, or FATCA.
FATCA, the anti-tax dodging crackdown law approved in 2010,
is being rolled out around the world by the U.S. Treasury
Department via a series of inter-governmental agreements.
The ratified tax information exchange agreement, or TIEA,
"is very important for FATCA," said Bruce Zagaris, a tax lawyer
with law firm Berliner, Corcoran & Rowe LLP.
FATCA, which takes effect January 2014, will require foreign
financial institutions to disclose to the United States
information about Americans' accounts worth more than $50,000.
The law puts the reporting burden on banks and investment
funds, which could effectively be frozen out of U.S. markets if
they fail to cooperate with the U.S. Internal Revenue Service.
The inter-governmental agreements, or IGAs, allow
home-country regulators of foreign financial institutions to
serve as go-betweens with the IRS. Institutions whose home
countries lack an IGA will be left to deal directly with the
The Treasury has completed IGAs with five countries: the UK,
Denmark, Mexico, Ireland and Switzerland. Negotiations are under
way with dozens more countries, including Brazil.
The TIEA "is a big development in the context of FATCA,"
said Michael Mundaca, a former U.S. Treasury official who has
negotiated tax matters with Brazil. He is now a senior executive
at accounting giant Ernst & Young.
"With every country that comes onboard, the pressure
increases on those that have not yet made a decision to fully
U.S.-BRAZIL TAX TREATY PROSPECTS IMPROVE
Brazil and the United States have no tax treaty, which helps
global companies avoid double taxation. The United States has
tax treaties with more than 60 countries, ranging from China and
the UK to Bangladesh and Kyrgyzstan.
Major companies such as Minneapolis-based Cargill and
Brazilian planemaker Embraer have said the
U.S.-Brazil TIEA is key to the two countries one day inking a
tax treaty to end double taxation.
"This information exchange is a first step ... We have never
done that," U.S. Deputy Commerce Secretary Rebecca Blank told
reporters during a trip to Brasilia earlier this week.
She said it could take a year to 18 months before the
countries start exchanging tax information.
FATCA compelled Brazilian banks to lobby for the
information-sharing deal and to get Brazilian authorities moving
toward more U.S. cooperation. "FATCA has helped to engage the
banking community" in Brazil, Zagaris said.
Brazilian tax collectors pursuing criminal tax dodgers have
already submitted requests for information to the United States,
he said. "There's too much at stake in terms of their own desire
to enhance tax enforcement," Zagaris said.