HM Revenue & Customs has finally published detailed guidance for financial institutions about the workings of Britain’s agreement with the US about swapping financial information under FATCA.
There has been increasing concerns among many institutions about what the changes would entail and now they have some answers.
The move by HMRC follows the American implementation of a law known as FATCA – or the Foreign Account Tax Compliance Act – which is aimed at cracking down on American citizens who have foreign bank accounts.
The idea is that foreign financial institutions (FFIs) register with the Internal Revenue Service (IRS) and then forward any relevant information about the financial affairs of US citizens. It is due to come into effect next year.
Failure to do so would lead to the US authorities withholding 30% of any financial transaction between the US and the FFI concerned.
FATCA raised a number of issues with foreign governments, including the UK, which would be in breach of data and privacy laws. A compromise was reached in which the government would forward the information as requested, in exchange for information of British individuals and companies in US jurisdictions.
The UK government then went a step further and brought forward plans to implement its own version of FATAC – known as ‘son of FATCA – which would compel financial institutions in this country and in dependent territories such as the Channel Islands to also reveal who was holding accounts.
But many feared that the law being proposed wasn’t explicit enough in the institutions being targeted.
For instance, under FATCA many UK institutions declared they would have to spend a lot of money in order to comply and, as a result, many have since declared they will not be dealing with US citizens because it is cheaper and less problematic to do so.
Now HMRC has published three documents which outline its position and helps to clarify what will be contained in the draft Finance Bill 2013.
Gaps in guidance
HMRC acknowledges that there are still ‘gaps in the legislation and guidance’ and how firms will register for FATCA compliance and how they deliver data.
There is also clarification over the term ‘similar business’ which could be defined as including solicitors and stockbrokers which means they may be unintentionally caught out by the new law.
HMRC have now provided examples to illustrate what counts as significant and minor non-compliance.
However, the report stresses that all UK businesses are expected to fulfil their legal obligations under the new law.
The deadline for comments on the proposals is now February 13, 2013.
The full HMRC report can be found here: http://www.hmrc.gov.uk/drafts/uk-us-fatca-guidance-notes.pdf
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