FATCA: US – UK Sign Bilateral tax agreement
As previously discussed, the US has been working with foreign governments to Improve tax compliance, combat offshore tax evasion and help them to meet their obligations under the new Foreign Account Tax Compliance Act (FATCA). Recently, model intergovernmental agreements have been proposed, with Switzerland and Japan signing FATCA agreements in June.
The US and the UK have been negotiating a bilateral agreement to assist UK financial institutions meet their obligations under FATCA and last Friday – September 14, 2012, this agreement was signed by the two governments.
Please note as you read below, the bold terms are defined in the pdf download of the agreement at the end of this post.
Under the terms of the agreement, each Reporting UK Financial Institution will be treated as complying with and not subject to withholding under FATCA if the UK complies with its obligations (see below) and the reporting UK financial institution:
- Identifies US reportable accounts and reports annually to HMRC in the manner prescribed by the agreement;
- For 2015 and 2016 reports annually to HMRC, the name of each Non-participating Financial Institution to which it has made payments and the aggregate amounts of said payments;
- Complies with various registration requirements in Partner Jurisdictions;
- Withholds 30 percent on any US source withholding payment to any Non-participating Financial Institution if it is either a Qualified Intermediary (QI), Withholding Foreign Partnership (WFP), or Withholding Foreign Trust (WFT); and
- Provides information to the payor of US source withholding payments to be able to meet its withholding tax obligations if the Reporting UK Financial Institution is not a QI, WFP, or WFT.
Note that even if the Reporting UK Financial Institution does not meets it obligations discussed above, it will not be subject to FATCA withholding unless it has been identified by the IRS as a Non-participating Financial Institution under the terms of the agreement.
The UK government will be required to furnish the following information for each US Reportable Account of each Reporting UK Financial Institution to the IRS:
- The name, address, and US Tax Identification Number (TIN) of each Specified US Person that is an Account Holder and in the case of a Non-US Entity which has a Specified US Person as a Controlling Person, the name, address and TIN of such person;
- The account number;
- The name and identifying number of the Reporting UK Financial Institution;
- The account balance at the end of the year’
- In the case of a Custodial Account, the gross amount of income generated by the assets held in the account and the total gross proceeds from the sale or redemption of property paid or credited to the account;
- In the case of any Depository Account, the gross amount of interest paid to the account; and
- In the case of accounts not described in points 5 and 6, the total amount paid or credited to the account holder during the reportable period to the extent that the Reporting UK Financial Institution is the obligor or debtor.
Note that under the terms of the agreement, the US government will be required to furnish similar information to the UK with respect to each UK Reportable Account of each Reporting US Financial Institution. The US already has a number of tax treaties around the world and this is a continuation of the information exchange between countries we wrote about here in April.
With respect to timing, for 2013 and 2014, the UK will only need to furnish items (1) through (4) above. In 2015, the UK will be required to furnish all items from the list above except gross proceeds from the sale or redemption of property paid or credited to any Custodial Account. Full reporting will be required from 2016 onward. All reporting will need to take place by September 30th of the following year in which the payments take place, although for 2013 only, the reporting must be exchanged by September 30, 2015.
The agreement makes one specific concession with respect to Recalcitrant Account Holders – the Reporting UK Financial Institution will not have to withhold under FATCA or close the account of the Recalcitrant Account Holder if the US Competent Authority receives the information discussed above in a timely manner.
A full copy of the FATCA agreement between the US and the UK can be found here:www.treasury.gov/resource-center/tax-policy/treaties/Documents/FATCA-Agreement-UK-9-12-2012.pdf