US signs two-way FATCA information deals with EU

The US government is tightening the net on tax cheats by signing two-way information-swapping deals with five European Union countries.

The Foreign Account Tax Compliance Act (FATCA) obliges non-US financial institutions with US customers to report details of their offshore holdings to the Internal Revenue Service (IRS) from January 2013. Read some advice about FATCA here.

The UK, France, Germany, Italy and Spain have agreed to work with the US on implementing FATCA rules in a joint crack down on tax evasion.

The agreement lets each country collect and forward information for the IRS about accounts held by or on behalf of US citizens from banks without requiring each institution to sign a FATCA contract with the US.

In return, the US Treasury will reciprocate with each country by sending them financial data on financial holdings of their citizens in US banks.

The message to taxpayers is anyone with an account in the US or one of these European countries will have their financial information fed to tax authorities, so should declare the details on their tax returns.

The US government is also ready to draw up similar agreements with other countries and expects to announce a second wave of tax deals within a few weeks.

One of the aims of the agreements is to ease the financial burden of reporting under FATCA on banks.

“We hope to have something published by the end of the month,” said Manal Corwin, deputy assistant secretary for international tax affairs at the US Treasury. “ The government-to-government agreements will be widely adopted and will include countries outside the EU.”

Nations the US is hoping to sign up to FATCA information transfer agreements include Canada, Switzerland, the Netherlands, and offshore financial centres like Ireland, the Cayman Islands and Bermuda.