WASHINGTON: Pakistan and the United States are sharing information on income tax and bank accounts of Pakistani citizens who have dual nationality.

According to diplomatic sources, the information is exchanged under the US Foreign Accounts Tax Compliance Act (Fatca).

The act offers two models, known as inter-governmental agreement 1 and 2. The first model requires a foreign financial institution to share related information with its own governmental agencies, which then report it to the US Internal Revenue Service (IRS).

Also read: US extends Fatca information exchange deadline

The second version requires a participating foreign financial institution to report information directly to the IRS. Under this arrangement, an FFI needs to register directly with the IRS.

Pakistan has signed the second model and under this arrangement 36 Pakistani banks and financial institutions have been registered with the IRS as participating institutions.

The agreement requires all these institutions to share with the IRS whatever information they may have about those US citizens who have bank accounts in Pakistan.

The IRS describes Fatca, enacted in 2010, as an important tool to combat tax evasion by US persons having investments in offshore accounts.

“But it is also useful for monitoring financial activities of suspected terrorists and of other individuals associated with such groups.

It helps monitor those who launder their money,” said a diplomatic source.

“After recent terrorist acts, the US government has increased its demand for Fatca compliance,” he added.

Published in Dawn, December 25th, 2015