The United States Treasury published the Model 2 intergovernmental agreement (IGA) (as well as updated Model 1 IGAs) last November that will allow countries with local law impediments to provide information on U.S. accounts held by foreign financial institutions (FFIs). The model IGA is the next step in the evolution of the U.S. Treasury’s strategy for implementing the Foreign Account Tax Compliance Act (FATCA), enacted in 2010.
Like the Model 1 IGAs, the Model 2 IGA is predicated on an existing information exchange agreement. For a discussion of the Model 1 IGA, please see previous client alert Treasury Releases Model Intergovernmental Agreements, Opens New Chapter in FATCA Implementation distributed on August 9, 2012 and available under publications at www.bakermckenzie.com. A FATCA partner must have a tax information exchange agreement or a double tax treaty with the U.S., or must be a party to the Convention on Mutual Assistance in Tax Matters in order to enter into a Model 1 or Model 2 IGA.
The U.S. Treasury is negotiating Model 2 IGAs with Japan and Switzerland. Switzerland has initialed an agreement with the U.S. and the agreement will be published once the parties sign it.
This client alert summarizes the contents of the Model 2 IGA and explains some of the key differences between the Model 1 and Model 2 IGAs. As the U.S. enters into more IGAs, each IGA may reflect differences and lead to additional complexity.