U.S. Signs Tax Pacts with U.K. and Australia
The U.S. government has signed “competent authority arrangements” with the United Kingdom and Australia to advance their intergovernmental agreements to combat tax evasion under the Foreign Account Tax Compliance Act, or FATCA.
The competent authority arrangements were signed in accordance with the “Agreement between the Government of the United States of America and the Government of Australia to Improve International Tax Compliance and to Implement FATCA” and the “Agreement Between the Government of the United States of America and the Government of the United Kingdom of Great Britain and Northern Ireland to Improve International Tax Compliance and to Implement FATCA”, IRS officials announced Thursday.
FATCA, which was included as part of the HIRE Act of 2010, requires foreign financial institutions to report on the holdings of U.S. taxpayers to the Internal Revenue Service, or else face stiff penalties of up to 30 percent on their income from U.S. sources. The law has attracted controversy at home and abroad. In an effort to smooth implementation, the U.S. Treasury Department has signed a series of intergovernmental agreements with tax authorities in a number of other countries in recent years, including the U.K. in 2012 and Australia in 2014. The agreements typically allow foreign banks to turn over the information to their own countries’ tax authorities, which in turn send it to the U.S.
A competent authority arrangement is a bilateral agreement between the U.S. and its treaty partners to clarify or interpret provisions of an existing tax treaty, such as the ones used to justify the intergovernmental agreements, or IGAs, under FATCA. The IRS recently extended some transitional rules for FATCA to give banks more time to adjust to the new regime (see IRS Extends FATCA Transition). Read more on Accounting Today.