The Australian Government's decision to investigate the feasibility of an intergovernmental agreement with the United States for compliance with the Foreign Account Tax Compliance Act has been welcomed by commentators.Last week the Government issued a model document that could form the basis of an agreement and asked the industry for comment.FATCA is an anti-tax avoidance regime, aimed at stopping tax abuses by US citizens holding overseas bank and investment accounts. Foreign financial institutions that operate accounts held by US taxpayers or by foreign entities in which US taxpayers hold a substantial interest will have to report details of these accounts to the US Internal Revenue Service.A foreign financial institution can be a bank, insurance company, broker, investment manager or custodian. The sanction for non-compliance is a 30 per cent US withholding tax on any "FATCA withholdable payment". Withholding requirements take effect progressively throughout 2014 and 2015.FATCA will put Australian financial institutions in a difficult position, because reporting to the IRS may result in breaches of client agreements, local privacy laws, anti-discrimination law and data protection rules.Inter-governmental agreements are aimed at overcoming such problems. Under an agreement the financial institution would report relevant details to the Australian Taxation Office, which would pass these on to the IRS.The ATO has the power to require that information be supplied to it, and it would not breach any laws by then passing it on.The Australian Bankers Association's policy director, Tony Burke, said: "We think an intergovernmental agreement is a very good idea. We have been lobbying for this for some time."Burke said: "The FATCA legislation requires individual institutions to gather information and give it to the IRS. An intergovernmental agreement would provide for a more efficient system, as well as helping financial institutions overcome conflicts."Burke said an intergovernmental agreement would also provide the Australian and US governments with a basis for negotiating deemed compliance - the basis for exemptions. The ABA is lobbying for exemptions for wealth management and superannuation businesses.Allen & Overy partner, Andrew Stals, said entry into an intergovernmental agreement was "absolutely critical" to allow Australian institutions to comply with their obligations.Stals said: "Without an intergovernmental agreement Australian law would prevent institutions from complying with their obligations. The IGA will relax conflicting domestic law requirements."FATCA financial advisory services leader at Deloitte, Chris Cass, said: "Even with an IGA, financial institutions will still have a reporting agreement. But it will use existing reporting processes, via the Australian Taxation Office, and that will have an impact on cost."Cass agreed that an IGA would provide a platform the Australian Government to negotiate exemptions."An IGA is a good idea, but we will be telling our clients that they should not stop working towards compliance readiness," he said.Cass said an IGA might not be of much help to financial institutions operating in a number of countries.And Stals said there were omissions in the model IGA issued by Treasury. "The model does not completely deal with recalcitrant account-holders - those who refuse to divulge information. Under FATCA an