The deal sees the Vatican become the latest of approximately 62 countries to sign on to the U.S. Foreign Account Tax Compliance Act, a 2010 law that allows financial information to be directly reported to authorities in the U.S.
It applies only to U.S. citizens and permanent residents, not organizations, and aims to identify people who are not annually declaring all of their foreign assets to the U.S. Internal Revenue Service.
The information the Holy See is due to hand over under the law should have already been sent to the IRS by individuals, some of whom have already been warned of the new agreement.
U.S. officials would not say how many American individuals hold money at the Vatican, but the number is believed to be rather small, perhaps in the dozens, according to the Vatican Insider.
Hackett said the deal marked a “very significant step” in collaboration between the two states.
“It also aligns with our mutual commitment to detect, deter and discourage offshore tax abuse through increased transparency and enhanced reporting. In partnership with the Holy See, we’re working towards building a stronger, more stable and more accountable global financial system,” he told journalists ahead of the signing ceremony.
Afterward, Gallagher said it was “unquestionably an historic event.”
“As Pope Francis frequently reminds us, evading just taxes is stealing both from the state and from the poor,” he said.
Citing ongoing financial reform at the Vatican, Gallagher said signing the agreement is “a further step in the Holy See’s long-term strategy to ensure and promote legality, transparency and ethical behavior in the economic and financial fields.”
Although the deal is the first formal intergovernmental agreement between the U.S. and the Holy See, there has been an uptick in financial cooperation in recent years.
In July 2014 the Vatican’s Financial Intelligence Authority signed an agreement to exchange information with an agency from the U.S. Department of the Treasury, the U.S. Office of the Comptroller of the Currency.
That deal came just over a year after the same Holy See authority signed a memorandum of understanding with the U.S. Financial Crimes Enforcement Network, to tackle money laundering and the financing of terrorism.
The agreement signed Wednesday further increases cooperation and follows deals signed between the Holy See and Italy earlier this year.
Rome on April 1 signed an agreement that will allow it to request financial information from the Vatican on individuals and companies based in Italy, a further effort to combat tax evasions.
Improving the Vatican’s bad reputation in the financial world has been a hallmark of Pope Francis’ papacy. The pontiff last year appointed Australian Cardinal George Pell as head of the new Secretariat for the Economy, created to oversee reform of the Vatican’s financial and administrative areas.
Francis earlier this year reiterated his intentions to broadly make the Vatican more open, telling cardinals gathered in Rome that the Holy See needs “absolute transparency.”
“Reform is not an end in itself, but a means of bearing a powerful Christian witness,” the pope said in February.