Czech Republic: Intergovernmental agreement between Czech Republic and the U.S. to improve tax compliance
In August 2014, the Czech Republic and the U.S. executed a FATCA Intergovernmental Agreement (IGA). The Foreign Account Tax Compliance Act which is U.S. federal law since 2010 seeks to map the income of U.S. persons who reside abroad, fight tax evasion and improve tax compliance internationally. In the wake of the IGA, the Czech Republic passed Act No. 330/2014 Coll., on the exchange of information on financial accounts with the United States of America for tax administration purposes. This Act requires financial institutions to screen the accounts of specific U.S. persons, to search existing records, and to archive their findings for the international exchange of account data for tax administration purposes. The domestic financial institutions must then report the specific data gathered pursuant to Act No. 330/2014 and other information set out in the IGA to the Special Finance Authority, which in turn passes them on to the U.S. on an annual basis by September each year. The exchange of information via the revenue services is designed to be mutual, with reciprocal reporting on each other’s residents.
The Czech Republic previously entered into an agreement with the USA on the avoidance of double taxation and the prevention of fiscal evasion in the field of income and property taxes.
However, the broader reporting duties under FATCA made it necessary to pass special legislation. Had the Czech Republic not done so, domestic financial institutions would have been slapped with a 30% withholding tax on payments originating from U.S. sources that would have made investments in the USA all but impossible and would have meant exclusion from the international capital market.
Source: Act No. 330/2014 Coll., on the exchange of information on financial accounts with the United States of America for tax administration purposes, and explanatory memorandum for the same