By Patrick Temple-West and Kevin Drawbaugh
WASHINGTON, July 26 The U.S. Treasury Department
on Thursday spelled out different ways for countries and foreign
financial institutions to comply with new U.S. disclosure rules
on offshore accounts controlled by Americans, ramping up a
crackdown on tax evasion.
Treasury is gradually implementing 2010's Foreign Account
Tax Compliance Act, or FATCA, a controversial statute that is
shaking the foundations of financial secrecy worldwide.
"Today's announcement is an important milestone in our joint
efforts to combat offshore tax evasion and make our tax systems
more efficient and fair," said Treasury Secretary Tim Geithner.
FATCA requires Americans to disclose overseas holdings
directly to the Internal Revenue Service, and it requires
foreign institutions to tell the IRS about offshore accounts
controlled by Americans if assets in them top $50,000 in value.
Institutions in other countries have been struggling for
months to square FATCA's demands with existing home-country
privacy laws and the sensitivities of account-holders accustomed
to secrecy, especially in places such as Switzerland.
The IRS is on track to begin penalizing foreign banks in
2014 for failing to comply with FATCA, pressuring them and their
home country governments to work out solutions.
Treasury said last month it had reached tentative agreements
with Switzerland and Japan. In February, Treasury said it was
negotiating with France, Germany, Italy, Spain and Britain to
set up government-to-government information sharing deals.
On Thursday, all sides offered signs that negotiations were
moving ahead, but that many details remained to be worked out.
Treasury offered two ways to structure agreements. One
involves two-way, or reciprocal, information-sharing between
national tax collection agencies.
"This version ... will be available only to jurisdictions
with whom the United States has in effect an income tax treaty
or tax information exchange agreement," Treasury said.
In addition, the department said reciprocal arrangements
would be limited to governments with "robust protections and
practices to ensure that the information remains confidential
and that it is used solely for tax purposes."
The second way to comply focuses on one-way information
sharing from the host government to the IRS. Financial
institutions in countries that lack any U.S. agreement will have
to report American account holders directly to the IRS.
"Both the reciprocal and non-reciprocal versions should help
financial institutions reach important FATCA objectives, while
potentially reducing costs to comply," said Denise Hintzke, a
global tax leader at Big Four accounting firm Deloitte.
The pathways to compliance outlined on Thursday cater to
countries that already have tax treaties or some information
sharing arrangements with the United States, said Scott Michel,
a tax lawyer with Caplin & Drysdale.
"This does make the FATCA pill a bit easier for these
institutions to swallow since they will largely be dealing with
their own domestic regulators throughout the process," Michel
said of the new model agreements.
FATCA stemmed from a 2009 settlement between the United
States and Swiss bank UBS AG, which was forced to pay
a fine and release the names of 4,500 clients to U.S. officials.