On September 14, 2012, the Treasury Department ("Treasury") announced that the United States has signed its first bilateral agreement with the United Kingdom regarding the implementation of the information reporting and withholding tax provisions of the Foreign Account Tax Compliance Act (FATCA). Enacted by Congress in 2010, FATCA provisions target non-compliance by U.S. taxpayers using foreign accounts.
The bilateral agreement is based on the model published in July and created in consultation with France, Germany, Italy, Spain, and the United Kingdom. See our Practice Update. The model agreement was based on a framework and negotiations Treasury announced in February with France, Germany, Italy, Spain, and the United Kingdom to set up government-to-government information-sharing deals.
Treasury Assistant Secretary for Tax Policy Mark Mazur stated "Today's announcement marks a significant step forward in our efforts to work collaboratively to combat offshore tax evasion. We are pleased that the United Kingdom, one of our closest allies, is the first jurisdiction to sign a bilateral agreement with us.”
By signing the bilateral agreement the two countries demonstrate that they are committed to working together over the longer term towards achieving common reporting and due diligence standards for financial institutions. They will now be able to use the automatic exchange of information to bring in non-compliant U.S. taxpayers.
FATCA has raised a number of issues, including that United Kingdom financial institutions may not be able to comply with certain aspects of FATCA due to domestic legal impediments. The bilateral agreement acknowledges that an intergovernmental approach to FATCA implementation would help address these legal impediments and reduce burdens for United Kingdom financial institutions.