By Patrick Temple-West
WASHINGTON, Oct 29 (Reuters) - Foreign banks and investmentfunds got more detail from the Treasury Department on Tuesdayabout how to comply with a new U.S. anti-tax evasion law,including a draft agreement that some institutions must sign toavoid possible penalties.
The new details underscore the importance of certainbilateral agreements Treasury officials are negotiating withdozens of countries to implement the Foreign Account TaxCompliance Act (FATCA), set to take effect in July 2014.
FATCA targets Americans who try to hide assets overseas toavoid paying tax. As it has taken practical form since passageby Congress in 2010, its shape has shifted amid complaints bybanks, insurers and expatriates.
The law will require foreign financial institutions to tellthe tax-collecting U.S. Internal Revenue Service aboutAmericans' offshore accounts worth more than $50,000.
The U.S. government has finished seven bilateral agreementswith countries that will allow their financial institutions tocomply with FATCA via their home-country regulators.
So-called Model 1 "intergovernmental agreements" (IGAs) ofthis sort have been signed with Denmark, Germany, Ireland,Mexico, Norway, Spain and Britain.
The draft agreement just released, along with some new rulesalso proposed on Tuesday, will not apply to financialinstitutions in countries with Model 1 IGAs. Where pacts of thistype are absent, institutions will need to comply with FATCArules and deal with the IRS on their own.
Switzerland and Japan have Model 2 agreements. Their firmswill need to sign the new draft FATCA agreement. The Model 2 IGAprotects foreign banks from violating local privacy laws, but itdoes not spare them having to report to the IRS.
Foreign institutions that fail to comply at all with FATCAface a potential 30-percent withholding tax on their U.S. sourceincome, a penalty that could effectively freeze them out of U.S.financial markets.
The Treasury hopes to get comments from firms beforefinalizing the draft agreement by the end of the year.
"The agreement and forthcoming guidance have been designedto minimize administrative burdens and related costs for foreignfinancial institutions and withholding agents," Deputy TreasuryAssistant Secretary for International Tax Affairs Robert Stacksaid in a statement.
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