The Foreign Account Tax Compliance Act (FATCA), which is part of the US Hiring Incentives to Restore Employment Act of 2010, aims to combat tax evasion by US tax residents using foreign accounts. It includes certain provisions on withholding taxes and requires financial institutions outside the US to pass information about their US customers to the US tax authorities, the Internal Revenue Services (IRS). Failure to meet these new reporting obligations would result in a 30% withholding tax on the financial institutions.
Draft US regulations setting out the implementation details were published in February 2012.
The FATCA provisions impose new and substantial burdens on UK businesses in identifying US taxpayers, and registering and reporting information to the IRS. Significantly for UK institutions the Data Protection Act precludes UK businesses from passing the required information to the US.
The government (along with France, Germany, Italy, and Spain) and with the support of the European Commission took part in joint discussions with the US government to explore an intergovernmental approach to FATCA, supporting the overall aim to combat tax evasion, while reducing risks and burdens on financial institutions. A model intergovernmental agreement (IGA) was developed and published in July 2012.
The UK and the US subsequently signed an IGA - the 'UK-US Agreement to Improve International Tax Compliance and to Implement FATCA' - in September 2012 (see the 'Current documents' section below).
The IGA reduces some of the administrative burden of complying with the US regulations, and provides a mechanism for UK financial institutions to comply with their obligations without breaching the data protection laws. Under the IGA, financial institutions pass information to HM Revenue & Customs (HMRC) who will then automatically exchange this information with the IRS.
The IGA has changed since it was signed, in that Annex II has been updated by a mutual agreement entered into between the competent authorities of the UK and the US. The changes result in a wider scope of institutions and products effectively exempt from the FATCA requirements, and provide greater clarity on the categories of institutions which will be non-reporting UK financial institutions that are treated as deemed-compliant under the IGA.
Annex II of the IGA was amended by an Exchange of Notes between the two governments dated 3 June and 7 June 2013 (see the 'Current documents' section below).
On 12 July 2013 the US announced a delay of 6 months before the commencement of FATCA. The effect of this delay is that there will be no reporting with regard to 2013, and all current deadlines for undertaking due diligence etc will be pushed back by 6 months.
On 6 May 2014 the US announced amendments to the on-boarding processes for new entity accounts opened between 1 July and 31 December 2014. The UK won't be adopting these amendments and UK financial institutions must comply with the UK regulations in order to meet their reporting obligations to HMRC.
Where UK financial institutions are required to obtain self-certification for a new customer these obligations will apply from 1 July 2014. This will maintain consistency between entity and individual on-boarding processes and the due diligence obligations for US and Crown Dependency/Gibraltar reporting purposes.
Final Regulations laid on 9 June 2014 (Opens new window)
These regulations come into force on 30 June 2014 and replace the previous regulations laid on 7 August 2013.
Immediate updates to guidance - to be included on review (PDF 17K)
This version of the guidance supersedes any versions previously published.
You can find further detailed information from the links below.
All the Crown Dependencies and Overseas Territories have entered into automatic tax information exchange agreements with the UK.
The UK and the Isle of Man signed an IGA - the 'UK-Isle of Man Agreement to Improve International Tax Compliance’ – on 10 October 2013. This was the first agreement of this type to be signed and published where neither party was the USA.
Guernsey and Jersey signed IGAs with the UK on 22 October 2013 – the 'UK-Guernsey Agreement to Improve International Tax Compliance’ and the 'UK-Jersey Agreement to Improve International Tax Compliance’.
The British Overseas Territory of Gibraltar signed an IGA with the UK on 21 November 2013 – the 'UK-Gibraltar Agreement to Improve International Tax Compliance’.
These 4 agreements are reciprocal, meaning that UK financial institutions will have to provide data on financial accounts held by residents of these territories.
Following discussions with the Crown Dependencies and Gibraltar an amendment to Annex II has been prepared which means that there will be no obligation to report on the controlling persons of a not for profit non-financial foreign entity. This will allow UK financial institutions to treat non-financial not for profit organisations under the International Tax Compliance (Crown Dependencies and Gibraltar) Regulations 2014 the same way that they're treated under The International Tax Compliance (United States of America) Regulations 2014. Details on how this amendment will operate can be found in section 3.2.3 at page 20 of the guidance for UK-CD/OT Agreements.
On the 5 November the UK and the Cayman Islands signed the first IGA between the UK and an Overseas Territory – the 'UK-Cayman Agreement to Improve International Tax Compliance’. Bermuda, Montserrat, the Turks and Caicos Islands and the British Virgin Islands all signed IGAs with the UK in London during the week of the Joint Ministerial Council (w/c 25 November) with Anguilla signing theirs on the 20 December.
The agreements with these territories are non-reciprocal, meaning that UK financial institutions will not have any reporting obligations under the terms of the agreements.
On 9 April 2013 the government - along with France, Germany, Italy and Spain - also announced an agreement to develop and pilot multilateral tax information exchange based on the Model Intergovernmental Agreement to Improve International Tax Compliance and to Implement FATCA.
A joint letter was issued to the European Commission setting out the terms of the agreement.
Following this announcement the Crown Dependencies and the British Overseas Territories have announced their commitment to engage in this pilot for multilateral exchange. You can read about the first announcement made on 2 May 2013, from the link below.
The Organisation for Economic Co-operation and Development (OECD) has now published the final text of the Common Reporting Standard (CRS) for multilateral exchange. This can be accessed from the link below. The commentary to the CRS is still under discussion at the OECD.
Under the terms of the CRS there is scope for the UK to exempt certain types of low risk financial institutions and/or accounts from reporting requirements. The UK will be seeking to use domestic legislation to exclude named products from the Annex II of the UK’s agreements with the US, the Isle of Man, Guernsey, Jersey and Gibraltar from reporting requirements under the CRS unless there is a policy reason to apply a different treatment.
For example, it is the UK’s intention that is that all UK registered pension schemes will be Excluded Accounts and domestic legislation will be introduced to give certainty on this issue.
Details on future agreements will be published on this page.