The German government sees the agreement as an important step toward putting in place a global model for the automatic sharing of  tax-relevant information.

The agreement is linked to the US "Foreign Account Tax Compliance Act" (FATCA). Under the provisions of this Act, foreign financial institutes will be required as of 2014 to notify the US tax authorities of accounts held by US clients. Otherwise they would be taxed at source on earnings on US investments.

Taking international action on tax evasion

Germany, France, the United Kingdom, Italy, Spain and the USA agreed in February 2012 to extend cooperation on efforts to combat tax evasion.

The five European states and the USA drafted a specimen agreement to this end. The German-American agreement largely mirrors this specimen.

Traditional tax havens like Luxembourg, Switzerland and Singapore too are entering into agreements with the USA. The provisions made by the FATCA (Foreign Account Tax Compliance Act) to tax earnings at source would otherwise effectively exclude these banks from the American market.

Paving the way for an exchange of information

By September 2015 Germany will notify the US tax authorities for the first time about accounts held by US citizens and corporations. This notification will cover the year 2013. In return, the USA will undertake to provide partner states will tax-relevant information.

The German government has decided to sign the agreement and draft the legislation needed to have it put it into practice by German banks and tax authorities. The bill will be introduced into the German Bundestag by the coalition parties parallel to the signing of the agreement.

It should be adopted before the next parliamentary elections, and will give German banks the legal certainty they need to make the necessary technical preparations.