The recently announced bi-lateral treaty between the US and UK on controversial legislation to prevent expats from dodging US taxes is a welcome step in clarifying the impact of these rules, says Withers, the law firm.
On 12 September, the UK became the first country to sign such an agreement with the US Treasury on how to enforce the US Foreign Accounts Tax Compliance Act, or FATCA. Getting ready for this act is still a serious challenge for the global financial services industry, as reported by this publication and others. The act highlights how the US's "worldwide" system of tax stands in stark contrast to the territorial approach adopted by most other jurisdictions, such as the UK, Singapore or Switzerland.
In particular, foreign financial institutions that do not comply with FATCA requirements for reporting to the IRS on their US account holders will be hit with a 30 per cent withholding tax. The scope of the act has already prompted some international banks, such as DBS in Singapore and HSBC, for example, to not take on US clients.