On March 5 2014 the United States signed intergovernmental agreements (IGAs) with Finland and Chile to implement the Foreign Account Tax Compliance Act (FATCA).  A total of twenty four of these IGAs have so far been signed by the US in connection with the FATCA rules.

FATCA, enacted by the US Congress in 2010 and, taking effect on July 1, 2014, is intended to ensure that the US obtains information on accounts held abroad at foreign financial institutions (FFIs) by US persons. Failure by an FFI to disclose information on their US clients, including account ownership, balances and amounts moving in and out of the accounts, will result in a requirement to withhold 30 percent tax on payments of US-sourced income. The effect of the FATCA regulations for foreign financial institutions is therefore that significant compliance obligations will need to be carried out.

To address situations where foreign law would prevent an FFI from complying with the terms of an FFI agreement, the US Treasury has developed model IGAs. Under the terms of the Model 1 IGA between Finland and the US, Finnish FFIs will be required to report the relevant information to Finland’s tax authorities, which will then automatically exchange the information with the US Internal Revenue Service (IRS). The automatic exchange of information will be reciprocal, and data will also be available on accounts held in the US by Finnish residents.

On the other hand, under the terms of the Model 2 IGA between Chile (said to be the first South American country to sign an IGA) and the US, there is no automatic exchange of information, and each FFI located in Chile will be required to enter into a separate agreement with the IRS, because they will have to report individual US account holder information directly to the IRS.