The U.S. and Germany have entered into an intergovernmental agreement (IGA) to improve tax information sharing between the two countries. This is an important step in improving transparency in international financial transactions and curbing tax evasion in the U.S.

During the last few months, the U.S. has made significant strides to bring down tax evasion by targeting offshore tax evasion, to which the country loses billions in tax revenue annually. The greater transparency and sharing of tax information between countries is being enforced with the Foreign Account Tax Compliance Act (FATCA), enacted by the Congress in 2010.

Tax News discloses the details of the agreement made between the U.S. and Germany: “The IGA states: “the Parties are committed to working together over the longer term towards achieving common reporting and due diligence standards for financial institutions.”

It adds: “The United States of America acknowledges the need to coordinate the reporting obligations under FATCA with other US tax reporting obligations of German financial institutions to avoid duplicative reporting.

Foreign Account Tax Compliance Act (FATCA) requires foreign financial institutions, as of 2015, to notify the US tax authorities of accounts held by US clients. Otherwise, they would be taxed at a rate of 30 percent on US investments.

Germany, France, the UK, Italy, Spain and the US agreed in February 2012 to extend cooperation on efforts to combat tax evasion.”

Following the conditions of the agreement, by September 2015, Germany will begin to notify U.S. tax authorities of the bank accounts held by U.S. taxpayers in their country. The sharing of this information will include the tax year 2013. In exchange for the information provided by Germany, the U.S. will provide partner states with relevant tax information.

According to Tax News, “The bill implementing the accord is to be submitted to the German Bundestag, or lower house of parliament, in parallel to the signing of the agreement. It is expected that the legislation will be adopted ahead of the next parliamentary elections, to give German banks the legal certainty they need to make the necessary technical preparations.”

Along with making tax information sharing agreements with the governments of various countries, the Internal Revenue Service is also running its Offshore Voluntary Disclosure Program (OVDP) to allow U.S. taxpayers voluntarily disclosure of their hidden assets in overseas banks.