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The government has issued a joint statement with its counterparts in France, Germany, Italy, Spain and the USA, announcing the publication of the model intergovernmental agreement to improve tax compliance and implement the US Foreign Account Tax Compliance Act (FATCA).
Under the model:
- the legal barriers to compliance, such as those related to data protection, have been addressed;
- withholding tax will not be imposed on income received by UK financial institutions;
- UK financial institutions will not be required to withhold tax on payments they make;
- due diligence requirements are more closely aligned to the requirements under the existing anti-money laundering rules;
- there is a wider scope of institutions and products effectively exempt from the FATCA requirements; and
- HMRC will receive additional information from the US Internal Revenue Service (IRS) to enhance their compliance activities.
According to HM Treasury, the measures will benefit financial institutions, their clients and the UK.
The government hopes to conclude negotiations with the US and sign the intergovernmental accord as soon as possible.
Financial institutions and other interested parties will then be consulted on implementation in the UK, and draft legislation will be published later this year.
Deepesh Upadhyay, tax group associate at international law firm Eversheds, explained that the agreement ‘allows for there to be an exchange of relevant information required under FATCA between the IRS and the tax authority of the partner, thereby avoiding direct reporting of such information to the IRS by financial institutions.
‘Instead, the institutions required to report the information must report directly to their local tax authority, which will be responsible for passing the data to the US’.
He added that the intergovernmental agreement ‘does not list which entities will fall within the relevant categories, as this will be a matter of separate negotiation between the US and the relevant FATCA partner countries.
‘Financial institutions wanting to determine whether they fall within the FATCA reporting regime will need to wait until the intergovernmental agreement is finalised between the US and their home jurisdiction.
‘Until the US FATCA regulations and the intergovernmental agreements are finalised, FATCA will continue to cause uncertainty for financial institutions wishing to determine its exact scope.’
