The Foreign Account Tax Compliance Act ("FATCA") is a
US tax measure enacted in 2010 to prevent and detect US tax evasion
and improve taxpayer compliance. It targets tax non-compliance by
US taxpayers with foreign accounts by imposing a 30% withholding
tax on their transactions with foreign financial institutions and
non-financial foreign entities that fall within the scope of FATCA
unless the institution concerned has concluded an agreement with
the US Internal Revenue Service defining its reporting obligations,
or the institution's home country has concluded an
Inter-Governmental Agreement ("IGA") covering the
relevant matters.
In July 2012 the US authorities published a model IGA known as IGA
Model 1, which allows institutions subject to FATCA to report
information directly to their tax authorities who will in turn
transmit the information to the US authorities. In the annexes of
Model IGA 1 there are lists indicating products, accounts and
institutions that are considered to be compliant or exempt. An
alternative version, IGA Model 2, was introduced later that year in
order to comply with the laws of certain countries including such
as Switzerland and Japan. Under IGA Model 2 affected entities
report to the relevant US authorities rather than their domestic
authorities.
In common with other EU countries Cyprus signed a memorandum of
understanding with the US in 2013 underlining the commitment of the
two countries to sign a Model 1 IGA. According to local media
reports, the Cyprus tax authorities have now provided their
American counterparts with all the requisite information and expect
the IGA to be in place within a month.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
