Cyprus: Cyprus Is Reportedly Close To Concluding An Inter-Governmental Agreement Under The US Foreign Account Tax Compliance Act
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.