Azerbaijan, IRS to ink additional confidentiality agreement

Azerbaijan and the U.S. Internal Revenue Office (IRS) will sign an additional agreement on confidentiality under the intergovernmental agreement on implementing the Foreign Account Tax Compliance Act (FATCA) by Azerbaijani banks by September 30, 2015.

The news was announced by Azerbaijani Taxes Ministry last week.

“It is known that the vast majority of transactions in dollars are conducted through U.S. banks’ correspondent accounts. Thus, the U.S. is capable of imposing serious sanctions against any financial organization that refuses to cooperate,” the ministry said.

Some 15 Azerbaijani commercial banks have already joined the IRS, including the International Bank of Azerbaijan (IBA), Bank Technique, Zaminbank, Bank Avrasiya, Azer Turk Bank, Muganbank, Caucasian Development Bank, Kapital Bank, PASHA Bank, Gunay Bank, DemirBank, Xalq Bank, Turan Bank, NIKOIL BANK and AtaBank.

Meanwhile, the Baku office of the British Baker Tilly Auditing and Consulting Company, subsidiaries of the IBA PASHA Bank in Georgia – the International Bank of Azerbaijan – Georgia and PASHA Bank Georgia have registered in the system.

The banks in all the countries should join the system of the IRS from July 1, 2014.

FATCA imposes a 30 percent withholding tax on the payments of the U.S. source income made to non- U.S. financial institutions, unless they enter into an agreement with the U.S. IRS and disclose information about their U.S. account holders.

Legislation in some countries does not provide for and even directly prohibits the disclosure of the information of account holders. However, compliance with the FATCA by commercial banks in any country will help them avoid sanctions.

Azerbaijani Cabinet of Ministers adopted a decision in April 2014 on the need to conclude such an agreement with the U.S. A commission was created especially for this purpose.

As a result, Azerbaijan was included on the IRS list of cooperating countries on May 16, and the deadline for its financial institutions’ registration in the system of U.S. tax authority was extended until December 31, 2014.

The finalization of the intergovernmental agreement, the completion of all necessary domestic procedures, and signing the document will take place prior to December 31, 2014, after which the state structures of Azerbaijan and the U.S. will conclude an additional document to regulate the practical organization of information exchange, ensuring privacy, and other issues.