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Recap: UK Financial Institutions affected by the new US – UK FATCA Agreement

As we posted yesterday, the US and UK governments on September 14, 2012, entered into a bilateral agreement to improve international tax compliance, combat tax evasion and to implement FATCA.  In addition to the procedural requirements relating to what both US and UK financial institutions as well as the US and UK governments must to do in order to be in compliance under the agreement, the agreement clarifies the types of Non-Reporting UK Financial institutions that will either be exempt from reporting under FATCA or be deemed-compliant Foreign Financial Institutions (FFI).

Certain institutions that are Non-Reporting UK Financial Institutions and that will be treated as exempt beneficial owners for purposes of FATCA include the “usual suspects” – UK governmental organizations, the Bank of England,  and any UK office of an international organization (i.e, the World Bank, IMF, etc.).  In addition, the agreement clarifies that any pension scheme or other retirement arrangement established in the UK and further discussed in the agreement (including pension funds or pension schemes covered by IRS Announcement 2005-30) will also be treated as exempt beneficial owners under FATCA.  For this purpose, a UK retirement plan or arrangement includes an entity established or located in and regulated in the UK, or a predetermined contractual or legal arrangement, operated to provide pension or retirement benefits or earn income for providing such benefits under the laws of the UK and regulated with respect to contributions, distributions, reporting, sponsorship, and taxation.

In addition, the agreement clarifies which UK Financial Institutions will be deemed-compliant FFIs (and thus not subject withholding requirements and generally do not have to provide information on their account holders).  These include:

  • Non-profit organizations
  • Financial Institutions with a Local Base – these are financial institutions licensed and regulated under the laws of the UK and do not have a fixed place of business outside the UK.  Furthermore, these institutions cannot solicit account holders outside of the UK and must be required under UK tax law to perform information reporting or withholding with respect to accounts held by residents of the UK.  At least 98 percent of the accounts by value must be held by UK residents or residents of the EU and various procedural requirements must be put into place to ensure that the financial institution does not provide accounts to certain US persons.

Finally, the agreement specifies which accounts and products established in the UK and maintained by a UK Financial Institution will not be treated as Financial Accounts (and thus are not US Reportable Accounts).  These include:

  • Pension schemes registered with HMRC under Part 4 of the Finance Act of 2004;
  • Pension schemes where annual contributions are limited to £50,000 per year and any funds contributed cannot be accessed until age 55 (except for ill health);
  • Individual Savings Accounts (ISAs);
  • Junior ISAs;
  • Child Trust Funds;
  • Premium Bonds;
  • Children’s Bonus Bonds;
  • Fixed Interest Savings Certificates;
  • Index Linked Savings Certificates;
  • Tax Exempt Savings Plans;
  • Share as you Earn Share Option Schemes;
  • Share Incentive Plans; and
  • Company Share Option Plans

A summary and the full US – UK bilateral agreement can be found here.

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