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Implementing the UK-US FATCA agreement: consultation

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HMRC has set out how the government intends to deliver the commitments made in the agreement, signed with the US last week, to improve international tax compliance and implement the Foreign Account Tax Compliance Act (FATCA). It has also set out a number of questions to assist it in estimating the costs and benefits of the agreement for UK businesses.

Comments are invited by 23 November. HMRC will host a ‘town hall’ meeting in London next Tuesday, 25 September. The government will publish draft legislation for comment once the consultation process has been completed, and final legislation will be put forward as part of the Finance Bill 2013 process.

Guidance on the IRS website describes FATCA as ‘an important development in US efforts to improve tax compliance involving foreign financial assets and offshore accounts’.

US taxpayers with specified foreign financial assets exceeding certain thresholds must report those assets to the IRS: ‘In addition, FATCA will require foreign financial institutions to report directly to the IRS information about financial accounts held by US taxpayers, or held by foreign entities in which U.S. taxpayers hold a substantial ownership interest.’

HMRC’s consultation document explained how last week’s agreement would benefit UK financial institutions: ‘An intergovernmental approach was identified whereby financial institutions would instead report the information to their respective tax authorities, who would then exchange the information to the US under the legal framework provided by existing double taxation and tax information exchange agreements.

‘In return for supporting the provision of taxpayer information to the US, the G5 [the UK, France, Germany, Italy and Spain] requested the US also provide information to the G5 on US accounts held by G5 taxpayers and for the administration costs to financial institutions to be minimised.’

The Model Agreement signed in July was ‘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’, HMRC said.