Article by Chris Tragheim Deloitte

The UK government has announced that four overseas territories have signed intergovernmental agreements (IGAs) to improve international tax compliance.

On 5 November the UK and the Cayman Islands signed the first IGA between the UK and an Overseas Territory – the ‘UK-Cayman Agreement to Improve International Tax Compliance’. Bermuda, Montserrat, the Turks and Caicos Islands and the British Virgin Islands all signed IGAs with the UK in London during the week of the Joint Ministerial Council. The agreements with these territories are non-reciprocal, meaning that UK financial institutions will not have any reporting obligations under the terms of the agreements.

The texts of the Intergovernmental Agreements is shown below. HM Revenue & Customs have also released preliminary sections of the guidance and final versions are expected shortly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

International agreements to improve tax compliance

The Foreign Account Tax Compliance Act (FATCA), which is part of the US Hiring Incentives to Restore Employment Act of 2010, aims to combat tax evasion by US tax residents using foreign accounts. It includes certain provisions on withholding taxes and requires financial institutions outside the US to pass information about their US customers to the US tax authorities, the Internal Revenue Services (IRS). Failure to meet these new reporting obligations would result in a 30% withholding tax on the financial institutions.

Draft US regulations setting out the implementation details were published in February 2012.

The FATCA provisions impose new and substantial burdens on UK businesses in identifying US taxpayers, and registering and reporting information to the IRS. Significantly for UK institutions the Data Protection Act precludes UK businesses from passing the required information to the US.

The UK-US Agreement

The government (along with France, Germany, Italy, and Spain) and with the support of the European Commission took part in joint discussions with the US government to explore an intergovernmental approach to FATCA, supporting the overall aim to combat tax evasion, while reducing risks and burdens on financial institutions. A model intergovernmental agreement (IGA) was developed and published in July 2012.

The UK and the US subsequently signed an IGA – the ‘UK-US Agreement to Improve International Tax Compliance and to Implement FATCA’ – in September 2012 (see the ‘Current documents’ section below).

The IGA reduces some of the administrative burden of complying with the US regulations, and provides a mechanism for UK financial institutions to comply with their obligations without breaching the data protection laws. Under the IGA, financial institutions pass information to HM Revenue & Customs (HMRC) who will then automatically exchange this information with the IRS.

The IGA has changed since it was signed, in that Annex II has been updated by a mutual agreement entered into between the competent authorities of the UK and the US. The changes result in a wider scope of institutions and products effectively exempt from the FATCA requirements, and provide greater clarity on the categories of institutions which will be non-reporting UK financial institutions that are treated as deemed-compliant under the IGA.

Annex II of the IGA was amended by an Exchange of Notes between the two governments dated 3 June and 7 June 2013 (see the ‘Current documents’ section below).

On 12 July 2013 the US announced a delay of 6 months before the commencement of FATCA. The effect of this delay is that there will be no reporting with regard to 2013, and all current deadlines for undertaking due diligence etc will be pushed back by 6 months.

Current documents*

Final regulations laid on 7 August 2013 (Opens new window)

These regulations come into force on 1 September 2013.

Guidance published on 14 August 2013 (PDF 468K)

This version of the guidance supersedes any versions previously published.

UK-US Agreement to Improve International Tax Compliance and to Implement FATCA on the National Archives website (Opens new window)

Annex II to the UK-US Agreement on the Official Documents website (Opens new window).

Tax Information and Impact Note (PDF 47K)

*These can all be downloaded from: http://www.hmrc.gov.uk/fatca/index.htm

The US announcement can be downloaded on the IRS website at: http://www.irs.gov/pub/irs-drop/n-13-43.pdf

Related story:

Bermuda and Montserrat latest in tax information deals

By Calum Fuller From Accountancy Age

Bermuda and Montserrat are the latest overseas territories to sign up to tax information-sharing arrangements with the UK.

They join the Cayman Islands, the Isle of Man, Jersey and Guernsey in agreeing to automatically supply HM Revenue & Customs with additional information, with data relating to companies and trusts to be shared after 2016.

On the current timetable, UK residents with assets concealed on the island will have until September 2016 to disclose details to the taxman and pay any tax owed to the HMRC, as well as a fine between 10% and 20%. While in most cases, the deal will see evaders escape prosecution, HMRC offers no guarantees.

Chancellor George Osborne said on Twitter the move represents “another step in our efforts to clamp down on tax evasion”.

PHOTO: Bermuda-flag

For more on this story go to:

http://www.accountancyage.com/aa/news/2309236/bermuda-and-montserrat-latest-in-tax-information-deals