HMRC has published a consultation paper on the implementation of the UK-US FATCA Agreement (the "Agreement") which was signed on September 12, 2012. The consultation paper explains the key provisions of the Agreement with the aim of producing clear and workable legislation and guidance. It is anticipated that draft legislation will be published for comment by the end of the year.
The Foreign Account Tax Compliance Act 2009 ("FATCA") is a US federal statute which was enacted to seek to prevent tax evasion by US individuals, by imposing a 30% withholding tax on "withholdable payments" made to non-US financial institutions, unless such institutions enter into an agreement with the US Internal Revenue Service (the "IRS"). In broad terms, "withholdable payments" means any income which may be considered US source income and includes, for example, salaries annuities. The Agreement enables UK financial institutions to meet their FATCA obligations without entering into an agreement with the IRS, by reporting directly to HMRC. The Agreement allows for the US and UK to exchange information in order to ensure compliance with FATCA.
The Agreement includes an annex listing the UK financial institutions that are FATCA non-reporting entities; these entities will be treated as exempt from complying with FATCA requirements. The exemption is drafted widely and includes: registered pension schemes; UK pension schemes covered by the UK-US double taxation convention; pension schemes where annual contributions are limited to GBP50,000 and funds cannot be accessed before age 55 (unless on serious ill-health grounds); and annuities.
As noted, the consultation paper explains the key provisions of the Agreement with the aim of producing clear and workable legislation. It is also confirmed that the UK government is in discussion with the US, EU, OECD and FATCA partner countries, with a view to establishing a consistent data format and legislative approach across jurisdictions.
It is anticipated that draft legislation will be published for comment by the end of the year. It has been indicated by HMRC that the rules which will be implemented under the Agreement may be set out in regulations, rather than the Finance Bill 2013.
The consultation closes on November 23, 2012.
Further details and guidance can be found in the full consultation paper which can be viewed by clicking here.