Areas of the legislation:
  • International agreements to improve tax compliance

International agreements to improve tax compliance

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 UK-US Agreement

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.

Download the US announcement on the IRS website (Opens new window)

Current documents

Final regulations laid on 7 August 2013 (Opens new window)
These regulations come into force on 1 September 2013.

Guidance published on 28 February 2014 (PDF 603K)
Immediate updates to guidance - to be included on review (PDF 17K)
This version of the guidance supersedes any versions previously published.

UK-US Agreement to Improve International Tax Compliance and to Implement FATCA on the National Archives website (Opens new window)

Annex II to the UK-US Agreement on the Official Documents website (Opens new window).

Tax Information and Impact Note (PDF 47K)

Previously published documents

You can find further detailed information from the links below.

Consultation: Implementing the UK-US FATCA Agreement

Summary of Responses: Implementing the UK-US FATCA Agreement

Draft regulations on the implementation of the UK-US FATCA Agreement (PDF 1.5MB)

Draft guidance (PDF 603K)

Regulations published on 31 May 2013 (PDF 2.2MB)

Guidance published on 31 May 2013 (PDF 470K)

Guidance published on 14 August 2013 (PDF 468K)

Other UK Agreements

The government has stated that it will look to sign further Agreements with other jurisdictions as part of their commitment to combat tax evasion. The Crown Dependencies (Isle of Man, Guernsey and Jersey) and the British Overseas Territories (the Cayman Islands, the British Virgin Islands, Bermuda, Anguilla, Turks and Caicos Islands, Montserrat and Gibraltar) have all agreed to enter into automatic tax information exchange agreements with the UK.

All the Crown Dependencies 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. The UK will be bringing in regulations to implement these arrangements in 2014, these regulations were published in draft on the 12 December 2013 along with a draft Tax Information and Impact Note, and are open for consultation until the 24 January 2014.

Selected areas of draft guidance have already been published to give clarity on key differences in scope between the regulations for reporting on US account holders, and account holders from the Isle of Man, Guernsey, Jersey or Gibraltar. Further guidance relating to issues specific to these Agreements will be published shortly.

Current documents

UK-Isle of Man Agreement to Improve International Tax Compliance (PDF 202K)

UK-Guernsey Agreement to Improve International Tax Compliance (PDF 207K)

UK-Jersey Agreement to Improve International Tax Compliance (PDF 211K)

UK-Gibraltar Agreement to Improve International Tax Compliance (PDF 207K)

Draft Guidance for UK-CD/OT Agreements (PDF 44K)

Final regulations on the implementation of the UK-CD and Gib Agreements (Opens new window)

Final Tax Information and Impact Note (PDF 44K)

Urgent Update: The UK is currently in discussions with the Crown Dependencies and Overseas Territories over the treatment of Charitable NFFEs. Work is ongoing to remove the obligation to 'look through' these entities to their controlling persons. Further updates will be made on this site.

Previously published documents

Draft regulations on the implementation of the UK-CD and Gibraltar Agreements (PDF 133K)

Draft Tax Information and Impact Note (PDF 53K)

On 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.

UK-Cayman Agreement to Improve International Tax Compliance (PDF 165K)

UK-Bermuda Agreement to Implement International Tax Compliance (PDF 189K)

UK-Montserrat Agreement to Implement International Tax Compliance (PDF 184K)

UK-Turks and Caicos Agreement to Implement International Tax Compliance (PDF 186K)

UK-British Virgin Islands Agreement to Implement International Tax Compliance (PDF 187K)

UK-Anguilla Agreement to Improve International Tax Compliance (PDF 200K)

Model UK-CD/OT Agreement

On the 26 June 2013 the government published a discussion document containing a model Agreement for the automatic exchange of information to improve international tax compliance that the UK is currently negotiating with the Crown Dependencies (CDs) and Overseas Territories (OTs). The Agreement contained a model inter-governmental agreement between the UK and an 'IGA Counterparty' for reciprocal exchange of information. The discussion is on the implementation by the UK of those agreements to be entered into.

Following the announcement by the US of a delay of 6 months before the commencement of US FATCA on the 12 July 2013 the UK government has announced that this revised timeline will also apply to similar agreements signed with the CDs and OTs.

This means that any commitments for UK financial institutions will now commence as of 30 June 2014. Only accounts in existence on or after this date will be subject to reporting and 2014 will be the first year that reporting covers.

Implementing the UK's Agreements with the Crown Dependencies to Improve International Tax Compliance (PDF 219K)

On the 12 December 2013 the government published a response to this discussion document along with draft regulations.

Summary of responses: Implementing the UK's Agreements with the CDs and Gibraltar to Improve International Tax Compliance (PDF75K )

Automatic exchange of information 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.

Read the 9 April announcement on the GOV.UK website (Opens new window)

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.

Find the 2 May announcement on the GOV.UK website (Opens new window)

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.

OECD Standard for Automatic Exchange of Financial Account Information

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 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.