The US Internal Revenue Service will pass information about the financial affairs of taxpayers to HM Revenue & Customs as part of a new cross border tax compliance agreement.
US Foreign Account Tax Compliance Act (FATCA) tax rules were stepped up a notch with a joint statement from the UK, France, Germany, Italy, Spain confirming an intergovernmental agreement to implement cross border tax compliance.
The agreement lets banks and other financial institutions based in each country transfer data under FATCA.
Each government has aimed to address the legal barriers to complying with FATCA, ensure the burdens imposed on financial institutions are proportionate to the goal of combating tax evasion and establish a reciprocal approach to FATCA implementation.
The agreement deals with a number of legal issues::
- Legal barriers to compliance, like dealing with data protection, have been addressed
- Withholding tax will not be imposed on income received by UK financial institutions
- UK financial institutions will not be required to withhold tax on payments they make
- Due diligence requirements are more closely aligned to the requirements under the existing anti-money laundering rules
- More institutions and financial products effectively exempt from FATCA requirements
These achievements will benefit financial institutions, their clients and the UK.
Welcoming the publication of the model, George Osborne, Chancellor of the Exchequer, said: “We need to be as tough on tax evasion abroad as we are at home. The Model Agreement constitutes an important step in tackling international tax evasion.
“We have achieved substantial changes to how FATCA will be implemented that will provide significant benefits to UK financial institutions while strengthening our ability to tackle the evasion of UK tax. I look forward to the prompt conclusion of our bilateral negotiations and the signing of our agreement with the United States.”