On November 19, 2012, the U.S. and Mexico signed an intergovernmental agreement ("IGA") to improve international tax compliance including with respect to the Foreign Account Tax Compliance Act ("FATCA"). FATCA generally requires a foreign financial institution ("FFI") to identify U.S. account holders and report information regarding them to the Internal Revenue Service. If an FFI fails to comply, the FFI will be subject to a 30% U.S. withholding tax on income it receives on its U.S. investments.
More than 50 countries have engaged in discussions with the U.S. in response to FATCA. Mexico became the third country (the U.K. and Denmark were the first two countries) to enter into an IGA. Like the IGAs with the U.K. and Denmark, the US-Mexico IGA requires annual, automatic information exchange, on a reciprocal basis, with respect to financial accounts in 2013 and subsequent years. Under the IGA, Mexico will automatically provide to the U.S. information it collected from Mexican FFIs on financial accounts in Mexico held by U.S. residents, and the U.S. will also automatically provide Mexico with information it collects on financial accounts in the U.S. held by Mexican residents. Generally, the two governments will exchange the information within 9 months after the year-end. However, the information relating to accounts in 2013 is not required to be exchanged until September 30, 2015.
We will soon post a comprehensive summary of the US-Mexico IGA.