Treasury reaches agreement with US on new tax clampdown
Market commentators warn that although Fatca will benefit consumers, “some issues have yet to be resolved”.
The US Treasury Department has issued guidance for countries and foreign financial institutions to comply with new US disclosure rules on offshore accounts controlled by Americans, which the UK government says is a “key step” towards delivering an integrated approach to tax evasion.
The US Treasury is gradually implementing 2010’s Foreign Account Tax Compliance Act.
Fatca requires Americans to disclose overseas holdings directly to the Internal Revenue Service and it is mandatory for foreign institutions to tell the IRS about offshore accounts controlled by Americans if assets in them top $50,000 in value.
As set out in the 8 February joint statement, the UK government said it has aimed to address the legal barriers to complying with Fatca, ensure the burdens imposed on financial institutions are proportionate to the goal of combating tax evasion and establish a reciprocal approach to Fatca implementation.
The UK government said it will now work to conclude negotiations with the US and sign the intergovernmental agreement “as soon as possible”.
Financial institutions and other interested parties will then be consulted on the implementation of the agreement in the UK and draft legislation will be published later in 2012.
George Osborne, chancellor of the Exchequer, said: “We need to be as tough on tax evasion abroad as we are at home. The model agreement constitutes an important step in tackling international tax evasion.
“We have achieved substantial changes to how Fatca will be implemented that will provide significant benefits to UK financial institutions while strengthening our ability to tackle the evasion of UK tax.
“I look forward to the prompt conclusion of our bilateral negotiations and the signing of our agreement with the United States.”
Hugh Savill, director of prudential regulation at the Association of British Insurers, believes this is good news for consumers as insurers will not not have to close accounts or withhold tax on customers who do not respond when contacted.
He said: “We all agree that tax evasion is damaging so we are pleased that the UK government have negotiated a sensible solution which will allow the UK to comply with Fatca and will work for the industry and consumers.
“The agreement will allow insurers to give the US information about US persons without forcing insurers to breach their data protection obligations or suffer a withholding tax on payments from the US.”
Ian Sayers, director general at the Association of Investment Companies, highlighted that the UK’s success in securing this agreement will create a “workable regime and should enable firms to avoid the punitive consequences of Fatca.
He said: “It should also substantially reduce compliance burdens. It is an important and very positive development.
“Some issues have yet to be resolved. This includes, for example, details of which products are considered to represent low risk of tax evasion and, consequently, will have fewer obligations imposed on them.”