By Daniel Hunter
The Government has this week signed an agreement with the United States to improve international tax compliance and implement FATCA.
This is the first agreement of its kind, benefiting UK financial institutions by addressing their legal concerns with complying with FATCA and reducing the burdens imposed on them. It also boosts HMRC’s ability to obtain information from the US to help in tackling UK tax evasion.
The UK-US agreement follows the Joint Statement made in July 2012 by the governments of France, Germany, Italy, Spain, the United Kingdom and the United States, announcing the publication of the Model Intergovernmental Agreement to Improve Tax Compliance and to Implement FATCA.
The signing of the agreement follows the conclusion of negotiations on the UK-specific Annex II. This sets out UK institutions and products which are seen as presenting a low risk of being used to evade US tax and are therefore effectively exempt from FATCA requirements.
The UK-US agreement is closely based on the Model Agreement, and:
• addresses legal barriers to financial institutions complying with FATCA;
• ensures that withholding tax will not be imposed on income received by UK financial institutions or on payments they make;
• ensures that the burdens imposed on financial institutions are proportionate to the goal of combating tax evasion; and
• establishes a reciprocal approach to FATCA implementation.
Having signed the agreement on behalf of the UK, David Gauke, Exchequer Secretary to the Treasury, said:
“This agreement demonstrates our commitment to working internationally to tackle tax evasion. It is the first of its kind and represents a significant step forward in the scope and nature of information exchange between governments. Furthermore, the changes we have achieved to FATCA implementation will provide significant benefits to UK financial institutions.”
The agreement has been laid before the Houses of Parliament and will undergo a 21 sitting day scrutiny period as part of the ratification process. Financial institutions and other interested parties will now be consulted on the implementation of the Agreement in the UK and draft legislation will be published later in 2012.
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