Azerbaijan, U.S. reach compromise on exchanging information on U.S. citizens’ accounts
Azerbaijan and the U.S. Internal Revenue Service (IRS) agreed to conclude an intergovernmental agreement on implementation of the Foreign Account Tax Compliance Act (FATCA) by Azerbaijani banks, the Ministry of Taxes of Azerbaijan said on May 21.
Starting from July 1, 2014 the banks in all countries should join the system of the IRS.
FATCA imposes a 30 percent withholding tax on payments of U.S. source income made to non-U.S. financial institutions unless they enter into an agreement with the U.S. Internal Revenue Service and disclose information about their U.S. account holders.
A similar collection is planned to be deducted from revenues of the sale of securities and even transit payments starting from 2017.
“It is known that, the vast majority of transactions in dollars are conducted through the U.S. banks’ correspondent accounts. Thus, the U.S. has real possibilities to impose serious sanctions against any financial organization, refusing to cooperate,” the ministry said.
Legislation in some countries does not provide for or even directly prohibits the disclosure of information on account holders.
However, compliance with FATCA by commercial banks of any country will help them avoid sanctions.
The U.S. Treasury Department and the IRS prepared a number of models corresponding to international agreements, helping to resolve this problem.
Azerbaijani Cabinet of Ministers adopted a decision on April 22, 2014 on the need to conclude such an agreement with the U.S.
A commission was created especially for this purpose. It has coordinated the preliminary text of the agreement through diplomatic channels.
“The most beneficial model was chosen among the proposed ones as a draft agreement, based on which the authorized bodies of the two countries will mutually exchange information on their account holders. For Azerbaijan, this authority was entrusted to the Ministry of Taxes,” according to a message from the ministry.
As a result, Azerbaijan was included on the IRS list of cooperating countries on May 16, and the deadline for Azerbaijani financial institutions’ registration in the U.S. tax authority’s system was extended until December 31, 2014.
“It was ensured that the sanctions will not affect any banks in Azerbaijan as a result of reaching this agreement,” the Ministry of Taxes said.
The finalization of development of the intergovernmental agreement, the completion of all necessary domestic procedures and signing of the document will take place prior to December 31, 2014, and after this the state structures of Azerbaijan and the U.S. will conclude an additional document regulating the practical organization of information exchange, ensuring privacy and other issues.