Chile latest to sign FATCA pact

Chile signed a non-reciprocal Foreign Accounts Tax Compliance Act (FATCA) intergovernmental agreement (IGA) with the US on Wednesday.

FATCA requires private equity firms, as foreign financial institutions (FFI), to provide US tax authorities tax information on any US investors or face a 30 percent tax penalty on US-connected income.

Chile’s agreement uses the Model II type of IGA which has no reciprocal provision, meaning the Internal Revenue Service (IRS) will not need to provide Chile with information on Chilean accounts holders in US financial institutions.

Switzerland and Japan also signed Model II IGAs, which require GPs in those countries to report directly to IRS.

One US-based tax partner said countries may elect the Model II IGA because their governments wouldn't want to adopt the internal laws, regulations and enforcement provisions that FATCA's other agreement, Model I, requires.

The ‘Model I’ IGA, originally established in July 2012, requires GPs to report to their local regulator who will exchange information on local US investors with the IRS, which will in turn share information on US financial accounts owned by foreign citizens.

The Model I has been signed by the UK, Ireland, Spain, Germany, Norway, France, Italy, Denmark and Chile’s South American neighbor Mexico.