5 keys to understanding the FATCA agreement between Argentina and US
Argentina joined the countries that have signed the FATCA agreement with the United States. This bilateral agreement is expected to collect one billion dollars annually in undeclared accounts of Argentines.
Sergio Massa, then Minister of Economy of Argentina, and Marc Stanley, U.S. Ambassador to Argentina, signed on December 5, 2022 a bilateral agreement to establish an automatic exchange of financial information.
The signing of this agreement will allow the Argentine government to detect more than $100 billion in undeclared accounts in U.S. territory.
The agreement signed is the Foreign Account Tax Compliance Act (FATCA), and will exclusively regulate the automated exchange of financial information on an annual basis.
Since the signing of the FATCA Agreement in December 2022, AFIP has been actively working to implement this first exchange of information. In April of this year, the federal administrator, Florencia Misrahi, held meetings with the main banking entities and associations, as well as with other agencies involved in the financial information regime (FATCA). During these meetings, the technical specifications necessary to adapt the information reporting systems were distributed.
The U.S. Internal Revenue Service (IRS) confirmed that Argentina has the appropriate data security measures and infrastructure in place to effectively carry out the first automatic exchange of financial information, scheduled for next September.
The FATCA law joins other tax information exchange agreements signed by Argentina.
Trans World Compliance brings you 5 keys to understand the FATCA agreement between Argentina and the United States:
1. What is FATCA?
The Foreign Account Tax Compliance Act (FATCA) primarily aims to control tax evasion by US residents with bank accounts abroad. FATCA requires the US Treasury Department to collect information from these accounts; through W-2 or 1099 forms, US companies notify individuals and the Internal Revenue Service (IRS) of income earned, which the IRS expects to be reported by the individuals.
Similarly, foreign financial institutions file FATCA reports to notify the IRS of US persons' foreign income and accounts, information that must match a US filer's Form 8938 Foreign Assets Reporting Form.
FATCA, which went into effect in 2013, does not seek to increase taxes on its citizens but rather to identify Americans and obtain information on those who hold money and other assets outside the United States to prevent tax evasion through mechanisms such as direct or indirect investments abroad, particularly those with tax advantages over foreign investment.
To achieve this goal, the IRS works with foreign financial institutions and other non-financial foreign entities to report information they hold on US citizens and their equivalent assets.
Argentina became the 114th jurisdiction to sign this agreement with the United States.
"This agreement is important to the United States of America because it will allow for the exchange of information on financial accounts held by specified US persons (directly or through specified entities) in Argentine financial institutions.
The agreement is reciprocal, and the United States will also provide certain information regarding financial accounts held by Argentine residents in US financial institutions," stated Ambassador Stanley at the signing of the agreement.
2. When did FATCA become effective in Argentina, and when must it be reported?
The FATCA agreement between Argentina and the United States became effective on January 1, 2023. This marked the formal start of the agreement, but did not mean the immediate start of the automatic exchange of tax information between the two countries.
Recently, in May 2024, the U.S. Internal Revenue Service (IRS) confirmed that Argentina has the appropriate data security measures and infrastructure in place to effectively carry out the exchange of information. This validation is crucial for the first automatic exchange of financial information, which is scheduled for September 2024.
Under FATCA, all global financial institutions are required to register and report on U.S. persons holding foreign financial accounts. If they fail to comply, they face an automatic 30% withholding on any FDAP income (fixed, determinable, annual or periodic) from the US.
Argentina signed a Model 1 IGA, which means that financial institutions must report to the Federal Administration of Public Revenues (AFIP), which in turn is responsible for sending that information to IRS systems. AFIP established June 30 as the internal deadline for financial institutions to make their respective reports, with September 30 of each year being the deadline for sending the information to the IRS.
The first exchange of information, which will include data up to December 31, 2023, will take place in September 2024, which will allow Argentina to access detailed financial information and thus improve efficiency in the fight against tax evasion.
"We are going to work so that before December 30, the Congress carries forward the treatment of a regulation that allows that, between January 1 and September 30, those Argentines who have not externalized their accounts have the opportunity to do so, with regimes that go from a much more beneficial principle to a regime that establishes that as from October 1 of next year, the appearance of those accounts provides not only sanctions from the economic point of view, but also from the criminal point of view", said Minister Massa in an interview with Radio Con Vos.
3. What information will be exchanged with the signing of FATCA in Argentina?
With the implementation of the FATCA agreement, a detailed exchange of information between Argentina and the United States is established.
This exchange will include specific data on financial accounts that are identified as reportable under the criteria of the agreement.
Argentine financial institutions are required to report annually the following information on each reportable account:
- Data of the Holder:
- Name, address and U.S. Tax Identification Number (TIN) of each specific U.S. person that holds the account.
- For non-U.S. entities that, after due diligence, are identified as entities controlled by one or more U.S. specified persons, the name, address and U.S. TIN of such entity and of each U.S. controlling person must be provided.
- Account Details:
- Account number, or the equivalent functional element if no number is available.
- Balance or value of the account at the end of the calendar year or, if the account was closed during the year, the value immediately prior to its closure.
- Revenues and Transactions:
- For custodial accounts: total gross amount of interest, dividends, and other income derived from assets in the account during the calendar year, and total gross amount derived from the sale or redemption of assets in the account.
- For deposit accounts: Total gross amount of interest paid or credited to the account during the calendar year.
- For other accounts: Total gross amount paid or credited to the account holder in connection with the account during the calendar year, including redemption payments made to the account holder.
For its part, the United States has committed to provide Argentina with information on all accounts held by Argentines in the United States, whether they are:
- individual accounts,
- corporate accounts with integrated companies or with Argentine citizens as beneficial owners,
- trusts with Argentine citizens as members.
trusts with Argentine citizens as members or with Argentine citizens as beneficial owners.
These procedures and the information to be reported are fundamental to FATCA's objective of preventing tax evasion and improving tax compliance, establishing an effective and secure communication channel between the tax authorities of both countries.
4. Why are information exchange agreements important?
The exchange of information is crucial to promote the correct application of the substantive tax regimes established by the different jurisdictions. This makes it a fundamental tool for tax authorities seeking to avoid the loss of tax revenues derived from the lack of knowledge of the income obtained by their taxpayers in other states.
In addition, the exchange of information has become one of the most significant indicators of a complete and functional tax system in a given country, making it possible to differentiate between standard tax jurisdictions and tax havens. Given its importance, the exchange of information has been regulated from various angles.
5. How can I report FATCA in a simple way?
At Trans World Compliance (TWC), we help tax authorities, financial institutions, and multinational companies fight tax evasion and avoidance. We have streamlined regulatory compliance technology and world-class multilingual support to help you worldwide comply with international tax information exchange regulations, mitigate regulatory and reputational risks, and significantly reduce the overall cost of compliance.
We are specialists in FATCA reporting. Whether tax authorities, financial institutions or multinational companies, our software enables you to lower the cost of compliance, mitigate reputational and regulatory risk, and simplify the way you report.
