Implementation of the UK-US Agreement: update
The Foreign Account Tax Compliance Act (FATCA), which is part of the US Hiring Incentives to Restore Employment Act of 2010, aims to combat tax evasion by US tax residents using foreign accounts. It includes certain provisions on withholding taxes and requires financial institutions outside the US to pass information about their US customers to the US tax authorities, the Internal Revenue Services (IRS). Failure to meet these new reporting obligations would result in a 30 per cent withholding tax on the financial institutions.
Draft US regulations setting out the implementation details were published in February 2012.
The FATCA provisions impose new and substantial burdens on UK businesses in identifying US taxpayers, and registering and reporting information to the IRS. Significantly for UK institutions the Data Protection Act precludes UK businesses from passing the required information to the US.
The UK-US Agreement
The UK Government (along with France, Germany, Italy, and Spain)and with the support of the European Commission took part in joint discussions with the US Government to explore an intergovernmental approach to FATCA, supporting the overall aim to combat tax evasion, while reducing risks and burdens on financial institutions. A model intergovernmental agreement (IGA) was developed and published in July 2012.
The UK and the US subsequently signed an IGA - the 'UK-US Agreement to Improve International Tax Compliance and to Implement FATCA' - in September 2012.
The IGA reduces some of the administrative burden of complying with the US regulations, and provides a mechanism for UK financial institutions to comply with their obligations without breaching the data protection laws. Under the IGA, financial institutions pass information to HM Revenue & Customs (HMRC) who will then automatically exchange this information with the IRS.
You can find further detailed information from the links below.
Other UK Agreements
The Government has stated that it will look to sign further Agreements with other jurisdictions as part of their commitment to combat tax evasion. The Crown Dependencies (Isle of Man, Guernsey and Jersey) and the British Overseas Territories (the Cayman Islands, the British Virgin Islands, Bermuda, Anguilla, Turks and Caicos Islands, Montserrat and Gibraltar) have all agreed to enter into automatic tax information exchange agreements with the UK.
On 9 April 2013 the Government - along with France, Germany, Italy and Spain - also announced an agreement to develop and pilot multilateral tax information exchange based on the Model Intergovernmental Agreement to Improve International Tax Compliance and to Implement FATCA.
A joint letter was issued to the European Commission setting out the terms of the agreement.
Following this announcement both the Isle of Man and the British Overseas Territories have announced their commitment to engage in this pilot for multilateral exchange. You can read about this announcement made on 2 May 2013, from the link below.
Details on future agreements will be published on this page.