G5 FATCA agreement strengthens UK ability to tackle tax evasion
G5 FATCA agreement strengthens UK ability to tackle tax evasion.
The Government has today 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 FATCA. This is a key step towards delivering on the commitment to an intergovernmental approach to implementing the US Foreign Account Tax Compliance Act (FATCA) made by the same countries in their joint statement published on 8 February 2012.
As set out in the 8 February joint statement, the UK Government has 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 and 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.
- There is a wider scope of institutions and products effectively exempt from the FATCA requirements.
- HM Revenue & Customs will receive additional information from the US Internal Revenue Service to enhance its compliance activities.
These achievements will benefit financial institutions, their clients and the UK.
The Government will now work 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.
Welcoming the publication of the model, George Osborne, Chancellor of the Exchequer, said:
We need to be as tough on tax evasion abroad as we are at home. The Model Agreement constitutes an important step in tackling international tax evasion. We have achieved substantial changes to how FATCA will be implemented that will provide significant benefits to UK financial institutions while strengthening our ability to tackle the evasion of UK tax. I look forward to the prompt conclusion of our bilateral negotiations and the signing of our agreement with the United States.
Notes for Editors
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The joint statement regarding the publication of the “Model Intergovernmental Agreement to Improve Tax Compliance and Implement FATCA” (PDF 145KB)
to tackling tax evasion and Implementing FATCA and the Joint Statement regarding the publications of the Model Intergovernmental Agreement can be found on the HM Treasury website. -
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 on the reporting of information by foreign financial institutions for US tax compliance purposes. These give rise to certain legal difficulties and administrative burdens for financial institutions.
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In order to address these issues, the Governments of France, Germany, Italy, Spain and the UK, with the support of the European Commission, have taken part in joint discussions with the US Government to explore a practical way forward that supports the overall aim to combat tax evasion, while reducing the risks and burdens on financial institutions.
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This approach focuses on the use of existing tax treaties for information exchange between tax authorities, rather than direct reporting by financial institutions to the US Internal Revenue Service.
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The US Government has agreed to a reciprocal approach to FATCA implementation. The US Treasury has recently issued final “bank deposit” interest regulations that will substantially increase the amount of information the US collects, which they will then share with the UK where it concerns UK residents.
While legislative constraints in the US mean that the authorities there are unable to collect certain information, most notably with regard to entities, they are providing the UK with a wider scope of information on individual accounts than we are providing them. Furthermore the Model contains a commitment by the US Government to pursue equivalent levels of information exchange.