–Updating 8:44 ET Story With Additional Treasury Comments

By Denny Gulino

WASHINGTON (MNI) – Now that a model agreement for international
cooperation in chasing tax evaders is available to be duplicated country
by country, even tax havens like the Cayman Islands will start signing
up to share information that tax evaders would like to hide, a U.S.
Treasury official said Thursday.

The Department earlier in the day released the language of a model
agreement, accepted by OECD member countries, that standardizes and in
some cases goes beyond arrangements already in place with a few European
countries.

U.S taxpayer data relating to income tax liability has been shared
for years with the UK. Chancellor of the Exchequer George Osborne
announced his endorsement of the model agreement simultaneously with the
U.S. announcement.

In all cases of cooperation, the official said, the U.S. will only
provide outgoing information after a case-by-case review. A second
version of the agreement that does not provide for reciprocal
information flows is also being made available.

Mexico expressed interest in 2009 in sharing information with the
IRS detailing payments liable for taxation of its investors and U.S.
investors. The official, who asked not to be quoted directly, said
Treasury is ready to solidify such an agreement with Mexico if the
government there is still interested.

Meanwhile, facing the prospect of a 30% penalty withholding tax on
payments if they don’t cooperate, even popular offshore tax havens are
ready to sign up as soon as the fall, the official said. The U.S. is
also working toward a model agreement acceptable to Switzerland and
Japan, Treasury announced last month.

The model agreement overcomes the biggest objection from other
countries by ensuring all information sharing is done government to
government. Financial institutions, wherever they are located, are not
required to deal directly with foreign governments although they may
face slightly different reporting formats when the law takes full
effect. It also provides for affiliates that operate under different
national rules than their parent firms.

While major provisions of the law do not begin to take effect until
2014 and the official beginning of enforcement is not until Jan. 1, the
effect on tax havens of now having available a document to sign is
likely to be immediate, the official said. Other countries will have to
approve their own implementing legislation to comply.

Although slow to develop, the model agreement is not welcome news
to many foreign financial institutions, which did not expect the
U.S.-led effort to get this far this soon.

Although the U.S. Congress need not take any further action beyond
what has already been done in passing the Foreign Account Tax Compliance
Act in 2010, some members of Congress who have huge concerns about
sending such information to some countries have threatened to change the
law.

“Today’s announcement is an important milestone in our joint
efforts to combat offshore tax evasion and make our tax systems more
efficient and fair,” Treasury Secretary Tim Geithner said in a statement
included with the day’s announcement. The model agreement was worked out
in consultations with France, Germany, Italy, Spain and the UK.

A country signing the agreement sets up automatic information
sharing with other countries, relaying information identifying account
holders that financial institutions already provide to their local
regulators and that has long been routine with some countries.

Although the reporting process is automatic, financial institutions
and funds in and outside the United States under such agreements are
forced to do more rigorous — and potentially very costly — due
diligence so the source of customers’ income is pinned down. The OECD is
expected to recommend streamlined procedures for reporting after a
September briefing on the law’s provisions to be held in Paris.

The law requires not only account numbers and addresses, but
telephone numbers, birthplace location, identifications of any related
powers of attorney or alternate beneficiaries. The law covers
individuals, partnership, corporations, estates and trusts

The law applies to any accounts involving more than $50,000. Life
insurance policy payments up to $250,000 may be exempted.

The official said the amount of tax revenue believed hidden from
collection around the world is huge, though unspecified. The government
effort to collect it is necessary not only because of the revenue
involved but because all taxpayers deserve a fair collection regime, the
official said.

U.S. financial institutions paying dividends, interest or other
proceeds to U.S. taxpayers living outside of the country face a 30%
punitive withholding tax if information the IRS needs is withheld. The
law exempts routine retirement accounts and Treasury will provide a list
of acceptable retirement programs eligible for that exemption.

Tax professionals have been waiting to see the final language of
the model agreement for years, as Treasury and the IRS plodded ahead to
implement the 2010 law.

“This agreement implements FATCA in a way that is targeted and
effective, while also providing a foundation for further international
coordination,” Geithner’s statement said. “We look forward to quickly
concluding bilateral agreements based on today’s model.”

The law has a broad reach, affecting any entity that accepts
deposits, holds any financial assets for others, is involved in
securities trading or partnership administration and includes
commodities trading and investment. European authorities are working on
another type of international tax collection agreement for the years
ahead that may be much more elaborate than FATCA.

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,M$X$$$,MI$$$$,M$X$$$,MGB$$$,MFU$$$,MGU$$$]