A tax information exchange agreement has sat gathering dust in the Brazilian for six years or more.
Now, all systems are go to ratify the treaty as Brazil prepares to put pen to paper of an intergovernmental FATCA agreement with the US.
The trouble is the US is playing hardball with the South American economic powerhouse and insisting the FATCA agreement cannot be signed if the other treaty is not in place.
The tax treaty with Brazil is a big scalp for the US Treasury as the absence of any formal tax agreement between the two countries allows multinationals to trade in the US without paying tax on profits.
President’s legacy
FATCA – the Foreign Account Compliance Tax Act – is fast becoming President Barack Obama’s foreign policy legacy.
Passed in 2010, FATCA is aimed at policing the offshore holdings and earning s of US taxpayers.
Foreign financial institutions must report details of the US customer accounts to the US Internal Revenue Service (IRS) each year or risk a withholding tax or possible ban on trading in the US.
Many FFIs complained they could sign up to FATCA due to local banking secrecy and data protection laws, so the US has negotiated agreements at government level to bypass the issue.
So far, several countries have signed up to FATCA and more than 50 are ready to accept the intergovernmental agreements.
The US Treasury reckons Brazil and the US will start sharing tax information on each other’s taxpayers within 18 months.
Information requests
The Brazilian government apparently had a change of mind over the treaty when the nation’s banks and finance houses lobbied in favour of signing a FATCA agreement as they feared the financial impact of being unable to trade in the States.
The US has also disclosed that the Brazilian tax authorities have already made their first requests for tax information to Washington.
“There’s too much at stake in terms of their own desire to enhance tax enforcement,” said a US Treasury spokesman.
Meanwhile, the Central Bank of the United Arab Emirates has held a FATCA seminar that recommended the government starts negotiations to sign an intergovernmental agreement with the US as soon as possible.
US Treasury Assistant Secretary for Tax Policy Mark Mazur applauded the decision and stated the US was ready to start discussing the agreement immediately.
