As a professional, I will provide you with an article on „what are the differences between the model 1 and model 2 intergovernmental agreement.“

The Model 1 and Model 2 Intergovernmental Agreements (IGAs) are two types of agreements that aim to facilitate the implementation of the Foreign Account Tax Compliance Act (FATCA). FATCA is a United States federal law that requires foreign financial institutions (FFIs) to report the financial accounts of US taxpayers to the Internal Revenue Service (IRS). In this article, we will discuss the differences between the Model 1 and Model 2 IGAs.

Model 1 IGA

Model 1 IGA is an agreement between the US government and a foreign government that allows FFIs in that country to report directly to their home government. The home government, in turn, will share the information with the IRS. Under the Model 1 IGA, FFIs in the partner country must comply with the FATCA requirements and register with the IRS. The foreign government will also establish rules and procedures to ensure compliance with FATCA. The Model 1 IGA is bilateral, which means that the US and the foreign government exchange information.

Model 2 IGA

Model 2 IGA is an agreement between the US government and a foreign government that requires FFIs in the partner country to report directly to the IRS. Under the Model 2 IGA, FFIs in the partner country must comply with the FATCA requirements and register with the IRS. The foreign government will also establish rules and procedures to ensure compliance with FATCA. The Model 2 IGA is unilateral, which means that the US collects the information from the FFIs directly.

Differences between Model 1 and Model 2 IGA

The most significant difference between Model 1 and Model 2 IGA is the way information is reported. Under Model 1 IGA, FFIs report to their home government, which then shares the information with the IRS. Under Model 2 IGA, FFIs report directly to the IRS. Another difference is the type of agreement. The Model 1 IGA is bilateral, while the Model 2 IGA is unilateral. The Model 1 IGA requires the foreign government to establish rules and procedures to ensure compliance with FATCA, while the Model 2 IGA does not require this. Finally, under the Model 1 IGA, the IRS conducts compliance reviews on the government`s agencies responsible for reporting, while under the Model 2 IGA, the IRS conducts compliance reviews directly on the FFIs.

Conclusion

In conclusion, the Model 1 and Model 2 IGAs are two types of agreements that facilitate the implementation of FATCA. The Model 1 IGA is a bilateral agreement that requires FFIs to report to their home government, which then shares the information with the IRS. The Model 2 IGA is a unilateral agreement that requires FFIs to report directly to the IRS. Understanding the differences between these two IGAs is essential for compliance with FATCA and for financial institutions looking to enter the US market.