On December 2, an intergovernmental agreement (IGA) for the implementation of the Foreign Account Tax Compliance Act (FATCA) was signed between Cyprus and the United States.
The US Congress enacted FATCA in 2010 to target non-compliance by US taxpayers using foreign accounts. It requires US financial institutions to withhold 30 percent of certain payments made to foreign financial institutions (FFIs) that do not agree to identify and report information on US account holders.
Foreign governments have two options for their financial sector to comply with FATCA: they can either permit their FFIs to enter into agreements with the IRS, or they can themselves enter into IGAs with the US to simplify their financial institutions' compliance with the regime by centralizing information exchange processes.
US Treasury has developed two alternative model IGAs. Under Model 1 – the form signed with Cyprus – FFIs report information to their respective governments who then relay that information to the US Internal Revenue Service.
The agreement was signed by Cyprus's Minister of Finance, Harris Georgiades, and the US Ambassador to Cyprus, John M. Koenig. The US welcomed "Cyprus's commitment to intensify our cooperation to improve international tax compliance. Cyprus has taken important steps to bolster the island's reputation and appeal as a financial and business service center in the region and around the globe."
He added that "today's signing marks the significant step forward in our countries' common efforts to work collaboratively to combat offshore tax evasion, an objective that benefits both our countries."