US and UK publish FATCA agreement
Yesterday, the UK Government issued a joint statement with the governments of France, Germany, Italy, Spain and the United States, announcing the publication of the Model Intergovernmental Agreement to Improve Tax Compliance and to Implement the United States Foreign Account Tax Compliance Act (FATCA).
This is viewed as a key step towards delivering on the commitment to an intergovernmental approach to implementing FATCA made by the same countries in their joint statement published on 8 February 2012 in which the UK Government aimed to:
- Address the legal barriers to complying with FATCA.
- Ensure the burdens imposed on financial institutions are proportionate to the goal of combating tax evasion.
- Establish a reciprocal approach to FATCA implementation.
More specifically, The Model sets out a framework within which:
- 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.
- The due diligence requirements are more closely aligned to the requirements under the existing anti-money laundering rules.
- HM Revenue & Customs (HMRC) will receive additional information from the US Internal Revenue Service (IRS) to enhance its compliance activities.
The UK Government said it was aiming to conclude negotiations with the US and sign the Intergovernmental Agreement as soon as possible. Financial institutions and other interested parties will then be consulted on the implementation of the agreement in the UK and draft legislation will be published later in 2012. The publication of the model was welcomed by George Osborne, Chancellor the Exchequer, who pointed to the benefits it offered to UK financial institutions and the strengthening of the UK ability to tackle tax evasion.
It was greeted more cautiously by the director general of the Association of Investment Companies (AIC) who whilst welcoming the agreement as creating a workable regime allowing UK firms to avoid the punitive consequences of FATCA, also pointed to the issues yet to be resolved such as how exactly the UK will approach implementation.