As we have previously reported, the Foreign Account Tax Compliance Act (“FATCA”) is becoming a significant concern to foreign banks, brokers and investment funds because of its potentially far reaching scope. When FATCA’s “withholdable payment” rules take effect in 2014, Sections1 1471 through 1474 of the Code will require that a foreign financial institution (“FFI”) has signed an agreement (“FFI Agreement”) with the U.S. Internal Revenue Service (“IRS”) in order to avoid a 30% U.S. withholding tax on U.S. source interest, dividends and sales proceeds, as well as on “passthru payments.”

One of the concerns expressed by FFI’s is that the exchange of information pursuant to an FFI Agreement violates privacy laws of foreign countries. Because of these concerns, in February the U.S. Treasury (“Treasury”) released a joint statement from the U.S., France, Germany, Italy, Spain, and the United Kingdom regarding an intergovernmental approach to improving international tax compliance and implementing FATCA. The joint statement noted that the U.S. is open to adopting an intergovernmental approach to implement FATCA and improve international tax compliance and is willing to reciprocate in collecting and exchanging on an automatic basis information on accounts held in U.S. financial institutions by residents of France, Germany, Italy, Spain, and the United Kingdom (i.e., a country-to-country information sharing model).