It was announced by HM Treasury recently that the UK government has signed an agreement with the United States to improve international tax compliance and to implement FATCA. FATCA is the Foreign Account Tax Compliance ACT which is designed to improve tax compliance involving foreign financial assets and offshore accounts.
The bilateral agreement is based on a model which was published this past July and developed in consultation with the US, France, Germany, Italy and Spain. It establishes a common approach to eliminating tax evasion based on the exchange of information. The UK is the first jurisdiction to sign such an agreement with the US.
The agreement is undergoing a 21 day scrutiny period as part of the ratification process. This agreement benefits UK financial institutions by addressing their legal concerns in regards to compliance with FATCA and aims to reduce the burdens imposed on them. It ensured that withholding tax will not be imposed on income received by UK financial institutions or on payments they make. The burdens imposed by FATCA are guaranteed to be proportionate to the goal of combating tax evasion. Also, the agreement establishes a reciprocal approach to implementation. The agreement’s focus on information exchange also helps HMRC’s efforts in tackling UK tax evasion.
The agreement also identifies entities, accounts and products from the UK which present a low risk of being used by US persons to evade US taxes. As such these Non-reporting UK Financial Institutions and Products listed in Annex II of the agreement are exempt from FACTA requirements.
Source: HM Treasury
