Azerbaijan and the U.S. Internal Revenue Service (IRS) are going to conclude an intergovernmental agreement on implementing the Foreign Account Tax Compliance Act (FATCA) by Azerbaijani banks.
The news was announced by Azerbaijani Taxes Ministry on May 21.
Starting from July 1, 2014, the banks in all the countries should join the system of the IRS.
FATCA imposes a 30 percent withholding tax on the payments of the U.S. source income made to non-U.S. financial institutions, unless they enter into an agreement with the U.S. IRS and disclose information about their U.S. account holders.
"It is known that the vast majority of transactions in dollars are conducted through U.S. banks' correspondent accounts. Thus, the U.S. has real possibilities to impose serious sanctions against any financial organization that refuses to cooperate," the ministry said.
Legislation in some countries does not provide for and even directly prohibits the disclosure of the information of account holders.
However, compliance with the FATCA by commercial banks in any country will help them avoid sanctions.
The U.S. Treasury Department and the IRS prepared a number of models corresponding to international agreements to help solve this problem.
Azerbaijani Cabinet of Ministers adopted a decision in April 2014 on the need to conclude such an agreement with the U.S.
A commission was created especially for this purpose.
"The most beneficial model was chosen among the proposed ones as a draft agreement, based on which the authorized bodies of the two countries will mutually exchange information on their account holders. For Azerbaijan, this responsibility was entrusted to the Ministry of Taxes," the ministry noted.
As a result, Azerbaijan was included on the IRS list of cooperating countries on May 16, and the deadline for its financial institutions' registration in the system of U.S. tax authority was extended until December 31, 2014.
"It was ensured that the sanctions will not affect any banks in Azerbaijan as a result of reaching this agreement," the Ministry of Taxes said.
The finalization of the intergovernmental agreement, the completion of all necessary domestic procedures, and signing the document will take place prior to December 31, 2014, after which the state structures of Azerbaijan and the U.S. will conclude an additional document to regulate the practical organization of information exchange, ensuring privacy, and other issues.