September 14, 2012: U.K. FATCA Intergovernmental Agreement
Foreign Account Tax Compliance Act (FATCA)
The first signed FATCA Intergovernmental Agreement and Annex II Released
On September 14, 2012, the U.K. Government announced that they were the first country to sign an agreement with the U.S. to implement FATCA. This FATCA Intergovernmental Agreement (“The Agreement”) follows the previously released Model Intergovernmental Agreement to Improve Tax Compliance and Implement FATCA (the IGA) and includes the previously unreleased Annex II. Click here to view the Agreement.
The Agreement will now be considered by Parliament for a period of 21 days as part of the ratification process. Financial institutions and other interested parties will now be consulted on how the Agreement should be implemented into draft legislation in the U.K. We expect the consultation period to begin shortly and HM Treasury has announced that draft legislation will be published later in 2012.
The Agreement closely follows the content of the model IGA, which was released in July 2012, and provides an alternative framework to collect and send information from financial institutions (FIs) in the U.K. to the IRS (via HMRC) regarding U.K. accounts held by U.S. persons. The Agreement addresses concerns around data privacy laws, introduces a number of new terms and amends some of the obligations for FIs (such as removing the requirement for U.K. FIs to withhold). However, there are still a number of significant steps to achieve compliance with FATCA. Crucially the Agreement will apply to all FIs, including branches and subsidiaries of foreign entities, located in the U.K. and FATCA will be implemented under local law.
Importantly the signed Agreement includes the previously unreleased Annex II which outlines a number of U.K. financial institutions and products that will be out of scope or have reduced obligations for FATCA reporting. Included in Annex II are:
- Exempt Beneficial Owners including U.K. Governmental Organizations, the U.K. Central Bank, international organizations (such as, the IMF, World Bank and OECD Support Fund), and certain retirement funds.
- Deemed Compliant Financial Institutions including Defined Non-Profit Organizations and Financial Institutions with a Local Client Base. The latter category includes, amongst others, credit unions, building societies and venture capital trusts where they meet a number of requirements. Chief amongst these requirements is that the FI must have no fixed place of business outside the U.K. and at least 98 percent of the accounts must be held by residents of the U.K. or an EU Member State.
- Exempt Products including Certain Retirement Accounts or Products and Other Tax-Favored Accounts or Products (which covers ISAs, Save As You Earn schemes and premium bonds amongst others).