Finance minister Maurice Cardenas signed a Foreign Account Tax Compliance Act (FATCA) intergovernmental agreement, with US Ambassador Kevin Whitaker last Wednesday. The bilateral agreement is aimed at combating offshore tax evasion by promoting the exchange of information between the two countries.
Above: Colombian finance minister Mauricio Cardenas exchanges documents with US Ambassador Kevin Whitaker. (photo credit: Emilio Aparicio – MHCP)
FATCA is a global model for combating offshore tax evasion and promoting transparency. Enacted in 2010, FATCA seeks to obtain information on accounts held by US taxpayers in other countries, and enables foreign governments to obtain similar information on their taxpayers resident in the United States.
The agreement will now allow information on US taxpayers in Colombia to be referred by financial institutions to Colombia’s Dirección de Impuestos y Aduanas Nacionales de Colombia (DIAN) which will subsequently transfer that information to the Internal Revenue Service (IRS) in the United States. In turn, and consistent with the reciprocal nature of this instrument, DIAN will receive information about Colombian taxpayers’ holdings in US financial institutions. This exchange of information will be done respecting the confidentiality of information by both parties.
“Today’s signing marks a significant step forward in our efforts to work collaboratively to combat offshore tax evasion – an objective that mutually benefits both our countries,” said Ambassador Whitaker.
Ramifications for Individuals
Under FATCA, US taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS. This reporting is made on Form 8938, which taxpayers attach to their individual federal income tax return. To help individuals understand how FATCA may impact their filing and reporting responsibilities, the IRS has published Information for U.S. Taxpayers on Form 8938 Requirements
Ramifications for Colombian Financial Institutions
FATCA will require foreign financial institutions to report to the IRS, through DIAN, information about financial accounts held by US taxpayers, or held by foreign entities in which US taxpayers hold a substantial ownership interest. Foreign financial institutions looking for information on this topic may visit the IRS website. Colombian financial institutions may also contact Colombia’s DIAN regarding implementation of the FATCA intergovernmental agreement with the United States.