The US Internal Revenue Service has developed an IDES platform for International Financial Institutions to file under FATCA

The US Internal Revenue Service has developed an IDES platform for International Financial Institutions to file under FATCA

Foreign Account Tax Compliance (“FATCA”) is a rule implemented by the United States with the goal of preventing tax avoidance by US taxpayers using foreign accounts. As the United States collects taxes on a worldwide basis, FATCA requires financial institutions all over the world to transmit accounting records of US taxpayers to the Internal Revenue Service (“IRS”).  This information is used by the IRS to identify taxpayers who may be evading their US tax obligations by hiding assets overseas. FATCA also requires US taxpayers to report certain offshore assets and income on their US tax returns.

To comply with FATCA’s objective, the US government enters into intergovernmental agreements (“IGA”) with other country governments to make it possible for taxpayers’ accountant information exchange to occur without violating those contracting parties’ internal regulations and for both parties to mutually assist in taxation benefits.

The IGA includes the following models:

  • Model 1: IGA in which the party gathers information on US citizens from financial institutions inside its jurisdiction and reports it to another party via an automated system. Model 1 is divided into two systems;
    • Model 1 A (Reciprocal): Both parties agree to transfer information back and forth via the automated system.
    • Model 1 B (Non-Reciprocal): The parties agree to provide the information to the US government in exchange for none in return.
  • Model 2: IGA in which the state parties agree to implement legislation permitting and compelling financial institutions to communicate information via an automated system.

Thailand has chosen International Data Exchange Service (IDES) as a tool for financial institutions information collecting in Thailand, and this method is known as M1O2.

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Currently, from 5 June through 30 June 2023 (Eastern Standard Time in the United States), the US Internal Revenue Service (IRS) will provide the IDES system for Thai financial institutions to trial receiving and transferring simulated data to the IRS. Financial institutions which did not register in the IDES system may register to participate by 1 June 2023 at 5:00 p.m. (Eastern Standard Time in the United States). Additionally, there is no need to re-register if the financial institutions have already registered in the IDES system. However, the new password must be validated before 1 June 2023 to ensure that it does not expire during the test. Also, ensure that the certificate used to send and receive data is valid for the length of the test, as financial institutions will be unable to modify their passwords or upload certificates during the test.

Author: Ms. Panisa Suwanmatajarn