The United States is engaging in bilateral examinations with foreign governments to ensure that a "culture of care" is in place for the electronic exchange of taxpayer information under the Foreign Account Tax Compliance Act and other regimes, according to Douglas O'Donnell, assistant deputy commissioner (international), IRS Large Business and International Division.
The IRS is working with other jurisdictions to analyze their legal frameworks for information exchange, technology systems, and policies and procedures for the monitoring of access to the shared data, O'Donnell said June 11 at the Executive Enterprise Institute's annual Forum on International Tax Withholding and Information Reporting in New York. The effort has turned out to be "a really heavy lift," but safeguarding the data that will be shared with other countries is a top priority for the United States, he said.
Likewise, the IRS is putting in place the proper safeguards to handle data turned over to the United States, said Theodore Setzer, program manager (foreign payments), LB&I. Leadership is working to make sure that everyone understands the policies and what the information received can be used for, he said, adding that "the safeguard equation goes both ways."
O'Donnell said the IRS also is checking to make sure that other countries have the necessary infrastructure in place to deliver on the requirements of the FATCA intergovernmental agreements. U.S. officials need to be confident that if they reach out to a competent authority with concerns about a financial institution, that country has the ability to actually do something about it, he said.
Compatibility Is the Goal
FATCA has served as an impetus for the United States to work more closely with other governments to better harmonize schemata and standards for the electronic exchange of information that can also be used for future initiatives, such as the OECD's global common reporting standard and work by the OECD's treaty relief and compliance enhancement group, said William Holmes, director (international data management), LB&I. There are now venues for tech professionals from around the world to work one on one and address challenges, he said.
There will never be a single form that will be used for all information exchange purposes, but the IRS intends to release a single electronic schema that could be used for a multitude of forms, Holmes said. He said the goal is to implement a schema with enough rigor that the country that receives the information can use it, while ensuring that the person loading the data correctly inputs all the information.
Setzer added that the IRS is moving away from the old approach of examiners looking at paper forms and is now accessing more information electronically. Instead of the form itself, the data behind the forms have become the most important element, he said. Accordingly, it's important to have organized data that can be filtered and sorted, Setzer said.
Nonresident Alien Deposit Interest Regulations
Rev. Proc. 2012-24, 2012-20 IRB 913 provides a list of dozens of countries with which the United States has agreed to exchange tax information, as described in concurrently issued final regulations on the reporting of deposit interest paid to nonresident aliens. The United States currently has provided for automatic exchange only with Canada; a request is required for information exchange with the other countries.
O'Donnell said that with the enactment of intergovernmental agreements, the United States expects to "get comfortable" providing bulk data to its partners. As such, the IRS is likely to update the list in Rev. Proc. 2012-24 to provide for automatic exchange with more countries. The updates are likely to occur with greater-than-annual frequency, he said.