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When the Foreign Account Tax Compliance Act (FATCA) was introduced, the US Treasury realized that foreign banks could not simply break their own local bank secrecy laws to report to the IRS. To solve this, they introduced Intergovernmental Agreements (IGAs).
Understanding which model your country follows is the first step in compliance.
Model 1 IGA: The "Government-to-Government" ApproachMost of the world (including India, the UK, Canada, and most of the EU) falls under Model 1.
- How it works: Financial Institutions (FIs) report information to their local tax authority (e.g., CBDT in India). The local authority then exchanges this data with the IRS.
- Consent: You generally do not need specific client consent to report, as it is a legal requirement under local law.
- Format: You typically file an XML report on your local country's tax portal.
Some countries (like Switzerland, Japan, and Bermuda) opted for Model 2 to preserve certain aspects of their privacy laws.
- How it works: FIs report directly to the US IRS via the IDES Gateway.
- Consent: FIs often need to obtain consent from their US clients to share this data. If a client refuses, they are listed in aggregate as "Non-Consenting US Accounts."
- Format: You must encrypt and sign the data using the IRS public key and a valid SSL certificate before uploading it to IDES.
Whether you are in a Model 1 or Model 2 jurisdiction, the data requirement is similar: you need robust XML generation. Novus Compliance supports both models, handling the complex IDES encryption for Model 2 and the specific schema variations for Model 1.
