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US, Canada sign agreement to halt offshore tax evasion in the Caribbean

On Wednesday, the Treasury Department said similar agreements were signed earlier this week with Hungary, Italy and Mauritius.  

The department noted that the US Congress enacted the FATCA in 2010 to “target non-compliance by US taxpayers using foreign accounts,” including those in the Caribbean.

“The provision has since become the global standard for promoting tax transparency,” said the statement, adding that the United States has signed 22 IGAs and “has 12 agreements in substance to date.”

“FATCA implementation is critical to combating international tax evasion and promoting transparency,” said Deputy Assistant Secretary for International Tax Affairs Robert B. Stack. 

“The agreements announced today clearly demonstrate the considerable international support behind FATCA, and we are proud to lead the global charge on this pressing issue,” he added.

FATCA seeks to obtain information on accounts held by U.S. taxpayers in other countries. It requires US financial institutions to withhold a portion of certain payments made to foreign financial institutions (FFIs) that do not agree to identify and report information on US account holders. 

The Treasury Department said governments have two options for complying with FATCA: they can either permit their FFIs to enter into agreements with the Internal Revenue Service (IRS) or they can themselves enter into one of two alternative Model IGAs with the United States.

Under a Model 1 agreement, the Treasury Department said FFIs report the relevant information to their respective governments, which then relay that information to the IRS. 

By contrast, a Model 2 agreement “contemplates that FFIs will provide relevant information to the IRS themselves, with government-to-government cooperation serving to facilitate reporting when necessary to overcome specific legal impediments.”

The Treasury Department said each of the countries in the announcement – Canada, Hungary, Italy, and Mauritius – signed reciprocal Model 1 agreements.

“This means that the United States will also provide tax information to these governments regarding individuals and entities from their jurisdictions with accounts in the United States,” the statement said.

It said the Treasury Department and the IRS will “continue to work diligently to finalize all related FATCA guidance so that FFIs and withholding agents have time to prepare and comply when withholding goes into effect on July 1, 2014.” 

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