UK and International Tax news

FATCA Regulations Update

Friday 30th August 2013

HMRC has recently laid final Regulations – The International Tax Compliance (United States of America) Regulations 2013 – which are to give effect to the Agreement [see our International Tax News item of 16 September 2012], reached between the UK and the US to improve international tax compliance and to implement FATCA, which was signed on 12th September 2012. The Regulations come into force from 1 September 2013.

In addition, HMRC has also published its Guidance Notes on the implementation of the Regulations.

The Agreement is now also to be read as if it contained the changes announced by the US on 12 July 2013 with regard to the revised timeline regarding the implementation of FATCA (Notice 2013-43). In particular, the first reports required under the legislation will be for 2014 rather than 2013. Where appropriate these changes are reflected in the UK Regulations laid on 7 August 2013.

The combined effects of all of these changes will be less burdensome due diligence procedures required to ascertain if accounts are reportable to the US, some additional but very specific exemptions from reporting, no reporting is now required in respect of 2013, fewer accounts will be subject to reporting and review in respect of 2014 onwards.

The intention of the Agreement is to ensure that the US receives information about US taxpayers’ accounts that is similar in nature to what would be required under its domestic FATCA law.  The US Treasury has advised HMRC that it is content if the UK does not wholly implement the Agreement, but does so only to the extent that implementation mirrors US FATCA law with the revisions referred to above.

he Agreement provides for mutual exchange of tax information between the tax authorities of the two States. (The UK has agreed to provide the US with certain information about the accounts of US taxpayers who hold accounts in UK financial institutions, and about certain payments made by UK financial institutions to financial institutions in other jurisdictions that do not have an agreement with  the US).

For UK financial institutions within the scope of the Agreement, the US has agreed not to impose a withholding tax that it would otherwise seek to apply to UK financial institutions with US source income. Those institutions would, absent the Agreement, be required to supply the IRS with certain information about account holders who are US taxpayers, or otherwise be subject to withholding tax.  However the Data Protection Act 1998 would preclude financial institutions within the UK’s jurisdiction from supplying such information directly to the US.

The instrument implements the Agreement, by enabling HMRC to obtain from UK financial institutions the information the UK has agreed to provide to the US, and so ensures that UK will receive reciprocal exchange of tax information from the US.   Information passed by UK financial institutions to HMRC under this instrument will, as required by the Agreement, be automatically exchanged annually with the IRS as envisaged by Article 27 of the Convention between the UK and the US for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains.

This instrument, pursuant to the UK’s obligations in the Agreement, only obliges UK financial institutions to pass to HMRC information about US taxpayers. In anticipation of the future agreements with other jurisdictions, the requirement to ascertain whether an account is held by a US taxpayer (and so subject to reporting under these Regulations) has been framed in terms of financial institutions being required to put in place arrangements to obtain details of the country of tax residence of all account holders within scope of future agreements. This allows financial institutions to introduce systems for collecting and maintaining information and to minimise implementation costs whilst also enabling compliance with data protection rules.

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