IRS launches system for data transfer under FATCA

Sovos
January 16, 2015

This blog was last updated on June 27, 2021

The IRS announced it launched its International Data Exchange Service (IDES) Jan. 12. This system allows foreign financial institutions (FFIs) and tax administrations to report on certain U.S. accounts to the agency under the Foreign Account Tax Compliance Act (FATCA).

“The opening of the International Data Exchange Service is a milestone in the implementation of FATCA,” John Koskinen, IRS commissioner, said in a statement. “With it comes the start of a secure system of automated, standardized information exchanges among government tax authorities. This will enhance our ability to detect hidden accounts and help ensure fairness in the tax system.”

According to IRS data, more than 145,000 FFIs will use the IDES to deliver information. Additionally, the exchange will include tax administrations from countries with Model 1 intergovernmental agreements.

Overall, the U.S. Treasury Department has signed 110 IGAs since the international tax information sharing legislation arrived in 2010, and each type has a separate deadline for delivering the first batch of information to the IRS. Jurisdictions with Model 1 IGAs have until May 31 or June 31 to deliver their first reports via the IDES, and countries with Model 2 IGAs and FFIs that are in a jurisdictions that don’t have agreements have until March 31.

If entities have questions about the system or how to use it, the IRS has provided many resources, including frequently asked questions and instructions sections on the website.

Creating a secure transfer
Per the IRS release, the IDES will encrypt all data during the transfer process. Additionally, senders must also encrypt the data prior to the submission. This two-step encryption process is to ensure taxpayer information is safe.

Data security is a top priority when it comes to transmitting data under FATCA regulations. Some jurisdictions have reciprocal IGAs with the U.S. under the international tax law, meaning the U.S. will provide reports on foreign residents from countries that have these agreements. The U.K., for example, was the first country to sign a bilateral IGA. While the U.S. will honor these arrangements and facilitate the data transfer process from its end via the IDES, it will not do so until the jurisdictions receiving the information have the necessary systems and encryption in place to ensure that information is secure during the transfer process.

For more information and updates about FATCA, check out our education section.

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Sovos

Sovos is a global provider of tax, compliance and trust solutions and services that enable businesses to navigate an increasingly regulated world with true confidence. Purpose-built for always-on compliance capabilities, our scalable IT-driven solutions meet the demands of an evolving and complex global regulatory landscape. Sovos’ cloud-based software platform provides an unparalleled level of integration with business applications and government compliance processes. More than 100,000 customers in 100+ countries – including half the Fortune 500 – trust Sovos for their compliance needs. Sovos annually processes more than three billion transactions across 19,000 global tax jurisdictions. Bolstered by a robust partner program more than 400 strong, Sovos brings to bear an unrivaled global network for companies across industries and geographies. Founded in 1979, Sovos has operations across the Americas and Europe, and is owned by Hg and TA Associates.
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