The UK and US have signed a tax agreement to ensure that the US’s controversial FATCA Act legislation can be enforced while curbing compliance costs, the UK government said yesterday.
The deal will, according to HM Treasury, address the fears of financial institutions worried that imposing the FATCA Act rules will drive up regulatory burdens on an industry already facing heavy compliance costs in the wake of the 2008 crisis.
The act, which was signed into law in 2010 and takes effect in stages over the next few years, is designed to catch expat US citizens who might be trying to evade the worldwide system of tax enforced by the US. In particular, the act requires foreign financial institutions – a broad term – to establish the nationality of their clients and source of investments or else pay a 30 per cent withholding tax. As a result, some global financial institutions, such as HSBC, DBS and Deutsche Bank, have reportedly ceased to provide services to US expats. (To view an article on the issue, click here.)
The Association Of Investment Companies, a group which represents the UK's listed investment trusts sector, welcomed the announcement. “The treaty will simplify the process of complying with FATCA. It recognises that Venture Capital Trusts and investment trust companies may not raise the same concerns where tax evasion is concerned and creates a mechanism to exempt them from reporting where they meet certain conditions," said Ian Sayers, AIC director general. “The next priority is to implement the treaty in a way which minimises the compliance burdens placed on the UK’s financial services sector while allowing the tax authorities to meet their obligations under the treaty.”
The agreement “also boosts HMRC’s ability to obtain information from the US to help in tackling UK tax evasion,” a statement from HM Treasury said. The pact follows a joint statement issued in July by governments of France, Germany, Italy, Spain, the UK and the US.