The government has this week signed an agreement with the US to improve international tax compliance and implement the Foreign Account Tax Compliance Act (FATCA).
This is the first agreement of its kind, which is reciprocal, will benefit UK financial institutions by addressing their legal concerns with complying with FATCA and reducing the burdens imposed on them. It also boosts HMRC's ability to obtain information from the US to help in tackling UK tax evasion.
The signing of the agreement follows the conclusion of negotiations on the UK-specific Annex II which sets out UK institutions and products which are seen as presenting a low risk of being used to evade US tax and are therefore effectively exempt from FATCA requirements.
The UK-US agreement addresses legal barriers to financial institutions complying with FATCA; ensures that withholding tax will not be imposed on income received by UK financial institutions or on payments they make; ensures that the burdens imposed on financial institutions are proportionate to the goal of combating tax evasion and establishes a reciprocal approach to FATCA implementation.
The US Treasury has recently issued final 'bank deposit' interest regulations which 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 agreement contains a commitment by the US government to pursue equivalent levels of information exchange.
David Gauke, exchequer secretary to the Treasury, said that the agreement demonstrates the UK's commitment to working internationally to tackle tax evasion.
'It is the first of its kind and represents a significant step forward in the scope and nature of information exchange between governments. Furthermore, the changes we have achieved to FATCA implementation will provide significant benefits to UK financial institutions,' said Gauke.
The agreement has been laid before the Houses of Parliament and will undergo a 21 sitting day scrutiny period as part of the ratification process. Financial institutions and other interested parties will now be consulted on the implementation of the agreement in the UK and draft legislation will be published later in 2012.
