U.S. and U.K. Sign First FATCA Intergovernmental Agreement
The United States and the United Kingdom announced on Friday, September 14, 2012 that they had signed the first bilateral intergovernmental agreement under the Foreign Account Tax Compliance Act ("FATCA"). The U.S.-U.K. agreement is closely based on the reciprocal Model Agreement set forth in a July 2012 Joint Statement by the governments of France, Germany, Italy, Spain, the United Kingdom and the United States. FATCA aims to combat tax evasion by U.S. tax residents directly or indirectly holding accounts at foreign financial institutions by requiring such foreign financial institutions to enter agreements with the United States to report to the IRS information and income with respect to such accounts. Failure of a foreign financial institution to enter into such agreement and provide such information would result in a 30% withholding tax on U.S. source income payments and certain other payments to such foreign financial institutions. The Intergovernmental Agreements are intended to address legal and privacy issues raised by several foreign governments with respect to implementation of FATCA. Under the Model Agreements, foreign financial institutions are required to provide information with respect to U.S.-owned accounts to their respective governments rather than to the IRS and in return are relieved of the obligation to withhold on payments made to non-complying account holders.
Annex II to the U.S.-U.K. Agreement contains a list of agreed U.K. financial institutions and products that are either exempt from FATCA or deemed compliant. These include U.K. governmental organizations, the Bank of England, the U.K. offices of several international organizations and U.K.-registered pension schemes and certain tax-favored U.K. savings products such as Individual Savings Accounts. The U.S.-U.K. Agreement, which is reciprocal, also contains a "most favored nation" clause entitling the U.K. financial institutions to the benefit of any more favorable terms related to FATCA that might be provided to financial institutions in another country under a similar bilateral agreement.
The Agreement has been laid before the Houses of Parliament and will undergo a 21-day review period as part of the ratification process of the U.K.
The United States Treasury Department has announced that it is open to negotiating a FATCA intergovernmental agreement with most countries.
Lofchie Comment: Readers with questions on FATCA may contact Mark Howe, Dan Mulcahy or another member of the Cadwalader tax department.
Click here to view FATCA Agreement.See also: Joint Communique; Clients Friends Memo; U.S. Treasury Press Release; HM Treasury Press Release.