Treasury IGA Agreements: What Are They and Why Do They Matter?
If you work in the financial industry, you may have heard of Treasury IGA agreements. But what exactly are they and why should you care?
The term “Treasury IGA” refers to intergovernmental agreements (IGAs) that are signed by foreign governments and the United States Treasury Department to implement the Foreign Account Tax Compliance Act (FATCA). FATCA is a law that was passed in 2010 to combat tax evasion by U.S. taxpayers who hold assets offshore.
Under FATCA, foreign financial institutions (FFIs) must identify and report information about their U.S. account holders to the IRS. Failure to comply can result in significant penalties. However, many foreign jurisdictions have privacy laws that prevent FFIs from disclosing this information directly to the IRS.
To address this issue, the Treasury Department began negotiating IGAs with foreign governments. There are currently two types of IGAs:
– Model 1: Under this model, FFIs report information to their local government, which then exchanges the information with the IRS.
– Model 2: Under this model, FFIs report information directly to the IRS, but with certain modifications to account for local privacy laws.
As of July 2021, 113 countries have signed IGAs with the United States. These agreements help facilitate compliance with FATCA and promote tax transparency.
So, why do Treasury IGA agreements matter? For one, they enable the IRS to obtain information about U.S. taxpayers who hold assets offshore, which can help identify and deter tax evasion. Additionally, they provide a framework for cooperation between U.S. and foreign authorities on tax matters.
As a financial professional, it`s important to understand the implications of Treasury IGA agreements for your clients. If you work with clients who have foreign accounts, you should be aware of the reporting requirements under FATCA and how IGAs may impact these requirements.
In conclusion, Treasury IGA agreements are important tools for promoting tax compliance and transparency. By facilitating the exchange of information between governments, these agreements help ensure that taxpayers are meeting their obligations and that tax authorities are able to enforce tax laws effectively.