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International tax compliance regulations take effect

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The International Tax Compliance Regulations, SI 2015/878, set out due diligence and reporting obligations for UK financial institutions in relation to the Revised EU Directive on Administrative Cooperation (DAC), the Multilateral Competent Authority Agreement with non-EU jurisdictions to implement the OECD’s Common Reporting Standard (CRS), and the UK/US FATCA Agreement. The regulations have effect from 15 April 2015 in relation to the FATCA agreement and from 1 January 2016 in relation to the DAC and the CRS.

In broad terms, the regulations:

  • introduce obligations on financial institutions to identify accounts maintained for account holders who are tax resident in the EU or jurisdictions with which the UK has entered into an agreement to automatically exchange tax information, and then collect and report such information in a specified manner to HMRC;
  • introduce penalty provisions for breaching the obligations;
  • include an anti-avoidance provision that will be triggered where a person enters into arrangements intended to avoid the obligations; and
  • revoke and replace the International Tax Compliance (United States of America) Regulations 2014, SI 2014/1506, i.e. the current regulations implementing the UK/US IGA.

In effect, the new regulations will consolidate the various requirements for the automatic exchange of tax information into a single regime.

In a related development, HMRC has also published a summary of responses to its consultation on how to best to implement the various agreements that represent the global standards on automatic exchange of information. HMRC has used the comments it received to inform its approach in preparing the Regulations and so should be instructive in understanding how the different rules and requirements interact. HMRC also intends to use the responses to assist it in drafting its CRS guidance for customers, with a view to publication in summer 2015.

Also, The International Tax Compliance (Crown Dependencies and Gibraltar) (Amendment) Regulations, SI 2015/873, which are amending regulations coming into force on 15 April 2015, make small changes to the definition of ‘reporting financial institution’ to better reflect the definitions in the agreements, remove the requirement to make nil returns, introduce a requirement for electronic returns, and insert provisions for a daily default penalty as well as an increased daily default penalty.