On 12 September 2012 the U.S. and U.K. governments signed the inaugural intergovernmental agreement  in respect of the U.S. Foreign Account Tax Compliance Act (FATCA) (UK IGA). While the agreement remains subject to domestic ratification processes in both countries, the signed UK IGA constitutes an important step in the ongoing FATCA implementation process for financial institutions world-wide. A copy of the UK IGA can be seen here.

The UK IGA follows the Model Intergovernmental Agreement to Improve Tax Compliance and Implement FATCA (Model IGA) that was released in July 2012 for application to financial institutions located in France, Germany, Spain, Italy and the United Kingdom. However, the UK IGA completes some of the key information that was not included in the Model IGA, namely:

  • the types of UK financial institutions that will be considered to be “deemed-compliant” (and therefore a “Non-Reporting United Kingdom Financial Institution”);
  • the list of UK and international “exempt beneficial owners” (and therefore a “Non-Reporting United Kingdom Financial Institution”) ; and
  • the list of UK accounts and products that will not be considered to be a “financial accounts” (and therefore not a “U.S. Reportable Account”)

for the purposes of FATCA (Annex II of the UK IGA).

The Australian government has announced that it intends to enter into negotiations with the U.S. in respect of entering into an intergovernmental agreement (IGA), and Treasury is currently seeking industry submissions on the advantages and disadvantages for Australian financial institutions of entering into the Model IGA. The entry into the UK IGA by the U.S. and U.K. governments may mean that the form of the Model IGA is effectively set in stone, and there may be little room for the Australian government to negotiate different provisions in respect of this model.

However, the inclusion of Annex II in the UK IGA is useful for Australian IGA negotiations as it shows the types of entities and accounts that the U.S. government is prepared to treat as “Non-Reporting Financial Institutions” or as not constituting a “U.S. Reportable Account”. These include U.K. pension schemes and other retirement arrangements, U.K. non-profit organisations, as well as a number of tax-favoured accounts and products (for example, Individual Savings Accounts (ISAs). In addition, UK  financial institutions that have a local client base are considered to be “Non-Reporting Financial Institutions” provided that they meet certain criteria. This is an extension of the “Local FFI” deemed compliance category available under the draft FATCA regulations, which was previously only applicable to certain foreign financial institutions (banks, securities brokers or dealers, financial planners or investment advisors), that now applies to any UK financial institution that meets the specified criteria.