The U.S. Treasury Department said Friday that it has signed a bilateral agreement with the United Kingdom to implement information reporting and withholding tax provisions under the Foreign Account Tax Compliance Act, or FATCA, allowing the two governments to share information about taxpayers from the U.S. and U.K.
Like what you see? Click here to sign up for Accounting Today's daily newsletter to get the latest news and behind the scenes commentary you won't find anywhere else.
FATCA was enacted by Congress as part of the HIRE Act of 2010 to crack down on noncompliance by U.S. taxpayers using foreign accounts. It requires foreign financial institutions, including hedge funds, to disclose information about the bank accounts and assets of U.S. taxpayers to the Internal Revenue Service.
The bilateral agreement signed this week is based on the model published in July of this year, developed in consultation with France, Germany, Italy, Spain and the United Kingdom (see Treasury Signs FATCA Agreement with 5 European Countries). The Treasury said it also marks an important step in establishing a common approach to combating tax evasion based on the automatic exchange of information.
“Today’s announcement marks a significant step forward in our efforts to work collaboratively to combat offshore tax evasion,” said Treasury Assistant Secretary for Tax Policy Mark Mazur in a statement. “We are pleased that the United Kingdom, one of our closest allies, is the first jurisdiction to sign a bilateral agreement with us, and we look forward to quickly concluding agreements based on this model with other jurisdictions.”
The Treasury Department said it is in communication with several other governments that have expressed interest in concluding a similar bilateral agreement to implement FATCA and expects to sign additional bilateral agreements in the near future. The Treasury and the IRS also are continuing to work towards finalizing the regulations implementing FATCA in the near term.
Updates and further information on FATCA can be found by visiting the Treasury FATCA page at www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA.aspx.
The agreement can be found at www.treasury.gov/resource-center/tax-policy/treaties/Documents/FATCA-Agreement-UK-9-12-2012.pdf.
Overcoming Bank Secrecy Rules
“What they did a while back was a joint statement by the U.K. Revenue and the U.S. IRS saying they basically will be collaborating to become what I call FATCA partners and enter into an intergovernmental agreement where they will agree on both sides to implement legislation so that their local countries’ banks will collect information, report it to them, and then the two tax authorities in each country will be able to exchange information,” said Michael Silva, tax partner and head of the FATCA group at the law firm DLA Piper, in an interview. “With this agreement that they’ve now done, the U.K. is the first in line, but there are many other European countries. It always helps to start doing the business which serves as a model for many other countries with a strong traditional partner using the same language. This agreement serves to provide the particulars on the scope, timing and extent of information that will be shared between the two tax authorities.”
Besides the other European countries in the original joint statement, the U.S. has also been working on an agreement with Canada, evidenced by the recent streamlined procedures that were announced for nonresident taxpayers such as dual U.S.-Canadian citizens (see IRS Streamlines Tax Compliance Procedures for Nonresident Taxpayers).
“Certain other countries have already come to the table, but the U.K. and the U.S. have been hammering out their agreement principally,” said Silva. “I think the primary goal was to understand that the exchanges would be reciprocal. In other words, what the U.S. would be asking the U.K. authority to share on U.S. investors and depositors at U.K. banks would be reciprocal in scope to what the U.S. authorities, having obtained info from U.S. banks, would be sending over regarding U.K. depositors here in the U.S. They wanted to match it up. That presumes that each country has what I call enabling legislation that requires that their local country bank report the same types of information to their tax authorities so that the tax authorities both receive and collect information that will meet that reciprocal standard.”
Silva noted that the banks of both jurisdictions have expressed interest in adopting a mechanism that allows them to turn over the data to their own countries’ tax authorities. “They much prefer that to exchanging information with the other country’s tax authority,” he said. “The reason for that is a series of local data privacy and bank secrecy rules that are more easily met by having banks turn over information to their own local authorities as opposed to some foreign authority.”