To combat tax evasion the U.S. Treasury enacted the Foreign Account Tax Compliance Act (FATCA), which aims at preventing that U.S. taxpayers avoid taxation on their income and assets held abroad.
Financial institutions located in jurisdictions that have signed an Intergovernmental Agreement (IGA)1 must report information to the U.S. Internal Revenue Service (IRS) about financial assets owned by U.S. taxpayers; reporting is done either to the relevant local tax authorities, which then provides the information to the IRS (in the Model 1 IGA), or directly to the IRS (in the Model 2 IGA).
FATCA compliant must be also Participating FFIs (Foreign Financial Institutions), i.e., the financial institutions that, although located in a country that has not signed an IGA, have decided to willingly cooperate with the IRS.
1 For an updated list of countries that have signed an IGA, see the Foreign Account Tax Compliance Act .
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