On November 19, 2012, the Treasury announced that it had entered into a third intergovernmental agreement or “IGA” , this time with the country of Mexico pursuant to the Foreign Account Tax Compliance Act (FATCA). Previously, Great Britain and Denmark had entered into the first two IGS this past fall.
As was previously highlighted on this Blog, on July 26, Treasury, released the first form of IGA (Model 1) for intergovernmental information sharing under FATCA. This was in response to the stated problem that many governments expressed that their domestic laws would not allow certain financial services organizations to turn over client information directly to the United States.
This problem with direct compliance with FATCA as being difficult and costly to many foreign banks and financial services firms, resulted in the preparation of a draft model agreement for FATCA compliance that was released for countries with which the U.S. has a tax treaty or tax information exchange agreement (in effect) where exchange of information is reciprocal, and the issuance of a second Model IGA which in terms of its language is substantially identical to Model 1.
The agreements clarify the responsibilities of financial institutions in reviewing and reporting accounts based on the identity of the account holder and the balance or value of the account.
In issuing its announcement concerning Mexico, the U.S. Treasury still hopes that its Model 1 IGA will be executed by Germany, France, Italy, Spain, and the U.K. The Model II approach is being negotiated with Japan and Switzerland and generally will require (unlike Model 1) foreign financial institutions to report to the IRS directly in most instances. The Mexico-U.S. IGA follows the Model I government-to-government approach to implementing FATCA.
As per the Denmark and U.K. IGA agreements, the Mexican version includes additional provisions that were not included in the Model I form. For example, Article 7 provides that Denmark will be afforded the benefit of any more favorable terms where the U.S. later enters into in a different IGA with another jurisdiction. Article 8 also anticipates discussions between Denmark and the U.S. where there are problems with implementation. The article also requires mutual consent for the amendment of the agreement.. Such provisions are contained in the Mexican IGA.