On April 28, in Canberra, the United States and Australia signed an intergovernmental agreement (IGA) to implement the Foreign Account Tax Compliance Act (FATCA). FATCA, enacted by the US Congress in 2010 and, taking effect on July 1, 2014, is intended to ensure that the US obtains information on accounts held at foreign financial institutions (FFIs) by US persons.
Failure by an FFI to disclose information on their US clients will result in a requirement to withhold 30 percent tax on payments of US-sourced income. To address situations where foreign law would prevent an FFI from complying with the terms of an FFI agreement, US Treasury has developed model IGAs. Under the terms of the Model 1 IGA between Australia and the US, Australian FFIs will be required to report their information to the Australian Commissioner of Taxation, who will then automatically exchange the information with the US Treasury. The automatic exchange of information will be reciprocal, and data will therefore also be available on accounts held in the US by Australian residents.
In a statement, the Australian Treasurer Joe Hockey said that: “The conclusion of this treaty-status IGA will help Australian financial institutions comply with FATCA. It reduces the overall burden on Australian business, minimizes costs by simplifying due diligence requirements and broadens arrangements between the Australian Tax Office and the US Internal Revenue Service. The IGA will also improve existing tax information-sharing arrangements between Australia and the US, for the purpose of preventing tax evasion. This will help to enhance the integrity of both countries’ tax systems.”