The Foreign Account Tax Compliance Act (FATCA) is a United States federal law that requires foreign financial institutions to report information about their American account holders to the US Internal Revenue Service (IRS). The law was passed in 2010 to combat tax evasion by US persons who hold bank accounts and other assets in foreign countries.
The FATCA law has been controversial since its inception, with many foreign financial institutions concerned about the burdensome reporting requirements and the potential for penalties for non-compliance. To address some of these concerns, the US government has entered into intergovernmental agreements (IGAs) with foreign governments.
An IGA is an agreement between two countries that provides a framework for implementing FATCA. There are two types of IGAs: Model 1 and Model 2. In a Model 1 agreement, the foreign government agrees to collect information from its financial institutions and transmit it to the IRS. In a Model 2 agreement, the foreign financial institution is required to report directly to the IRS.
The aim of these agreements is to simplify the implementation of FATCA and reduce the burden on foreign financial institutions. In exchange for complying with FATCA, financial institutions can avoid penalties and continue to do business with the US.
Many countries have signed IGAs with the US, including Canada, the United Kingdom, and Switzerland. However, there are still many countries that have not signed an IGA and are therefore subject to the full scope of FATCA.
Overall, FATCA and IGAs have had a significant impact on the international financial community. While they have helped to crack down on tax evasion, they have also created additional reporting requirements for foreign financial institutions and raised concerns about privacy and data protection.
As a copy editor, it is important to understand the nuances of complex legal agreements like FATCA IGAs. With this knowledge, you can ensure that articles and other content accurately convey the details and implications of these agreements.