The information exchange agreement is based on FATCA`s IGA Model 1, which is becoming a global standard for the multilateral automatic exchange of tax information. FATCA`s IGA Model 2 would allow Cayman financial institutions to report directly to the IRS. The Foreign Account Tax Compliance Act (US FATCA) was passed in 2010 in the United States to reduce offshore tax evasion collected by the United States holding assets through offshore accounts that were not offshore accounts not reported by the United States to the Internal Revenue Service (IRS). US FATCA requires a foreign company that is a foreign financial institution ("Financial Institution" or "FI") to either enter into an agreement with the IRS regarding this report, or (ii) to comply with local laws that implement an Intergovernmental Agreement ("IGA"). If a financial institution does not comply with U.S. FATCA, a 30% withholding tax will be levied on that financial institution`s income. Financial institutions are also required to close accounts if their U.S. customers do not provide information to collect from them. Model 1 IGA (published on 26 July 2012 and amended on 14 November 2012) provides that in the IGA partner country, IGA`s partner country, FFIs identify US accounts in accordance with the due diligence obligations imposed by the partner country and communicate certain information to the competent government authorities of the partner country. The information is then automatically exchanged by the partner country with the IRS in order to provide the quality and quantity of information that the IRS would receive from a participating IFF under a bilateral agreement.
Commenting on the deal, a U.S. government official said, "By working together to detect, deter and deter tax abuses at sea through increased transparency and better information, we can contribute to a stronger, more stable and accountable global financial system." The United States is not the only country with which the Cayman Islands share financial information. On the eve of the signing of the US FATCA agreement, the Cayman Islands signed a FATCA agreement with Great Britain. As announced in our previous updates to the Foreign Account Tax Compliance Act (FATCA), the Cayman Islands Government and the U.S. Treasury officially signed the FATCA Model 1 ("IGA") non-reciprocal government agreement on November 29, 2013. .