On July 26, 2012, the U.S. Department of Treasury ("Treasury") published the intergovernmental model agreement for government-to-government information sharing ("model agreement") to implement the information reporting and withholding tax provisions commonly known as the Foreign Account Tax Compliance Act ("FATCA"). Enacted by Congress in 2010, FATCA provisions target non-compliance by U.S. taxpayers using foreign accounts. See our Practice Update.

The model agreements are based on a framework and negotiations Treasury announced in February with France, Germany, Italy, Spain and the United Kingdom to set up government-to-government information-sharing deals. See our Practice Update.

These countries, along with the U.S., will, in close cooperation with other partner countries, the Organization for Economic Cooperation and Development, and, when appropriate, the European Commission, work towards common reporting and due diligence standards in support of a more global approach to effectively combatting tax evasion while minimizing compliance burdens.

Treasury indicated that this a joint effort to combat offshore tax evasion and that “this agreement implements FATCA in a way that is targeted and effective, while also providing a foundation for further international coordination.”

Two versions of the model agreement were released; a reciprocal version and a non-reciprocal version. Treasury also released a joint communique with France, Germany, Italy, Spain, and the United Kingdom, endorsing the agreement and calling for a speedy conclusion of bilateral agreements based on the model.

The joint communique indicates that the model agreements establish a framework for reporting by financial institutions of certain financial account information to their respective tax authorities, followed by automatic exchange of such information under existing bilateral tax treaties or tax information exchange agreements. The model agreements also address the legal issues raised in connection with FATCA, simplify its implementation for financial institutions and provide for reciprocal information exchange.

The reciprocal version of the model agreement also provides for the U.S. to exchange information currently collected on accounts held in U.S. financial institutions by residents of partner countries. This version of the model agreement will be available only to jurisdictions with whom the U.S. has in effect an income tax treaty or tax information exchange agreement and with respect to whom the Treasury and the Internal Revenue Service ("IRS") have determined that the recipient government has in place robust protections and practices to ensure that the information remains confidential and that it is used solely for tax purposes. Subject to certain exceptions, the governments must exchange information within nine months after the end of the year to which the information relates.

Alternatively, the non-reciprocal version of the model agreement would allow countries to comply with FATCA under the same obligations, however, these countries would not receive an exchange of client banking information. The non-reciprocal version will be used for countries that do not have in effect with the U.S. an income tax treaty or tax information exchange agreement.

The release of the model agreement comes just two days after Michael Plowgian, an attorney-adviser in Treasury's Office of International Tax Counsel, stated that there most likely would not be any additional push back on the various deadlines related to FATCA.

Mr. Plowgian also stated that the final regulations related to FATCA should be released by the end of summer or early fall and that the final foreign financial institution agreement will be released around that time.

Finally, Mr. Plowgian stated that the model agreement would be released shortly (two days later in fact) and that a second alternative FATCA framework would be released soon after the model agreement with Japan and Switzerland.

FATCA requires foreign financial institutions to report U.S.-owned accounts to the IRS or face a 30 percent withholding tax. Foreign financial institutions in countries that do not sign up with Treasury will need to report client tax information directly to the IRS. Foreign financial institutions that do not share client information with the IRS will be subject to the 30 percent withholding tax beginning in 2014.