US FATCA, UK FATCA, G5 Exchange of Information Forum

Country exchange of information measures
In order to put in place some of these exhange of information measures additional tools have been developed. These tools often allow governments to obtain information concerning non-resident nationals that is not available for nationals resident in their home country. Billions of dollars are being spent by private institutions to implement this legislation.

This briefing forms part of the "Tax transparency update – detailed international update - November, 2013" found at

G5 pilot project for automatic exchange


US FATCA - Deferred Until July 2014
The Foreign Account Tax Compliance provisions (commonly known as FATCA) contained in the HIRE Act 2010 is US legislation aimed at reducing tax evasion by their citizens. Much has been written about FATCA. We do not intend to expand on the detail of this program here.

In summary FATCA requires foreign banks, insurers and investment funds to send the US Internal Revenue Service information about Americans' offshore accounts worth more than $50,000.

Foreign businesses, including trusts, companies, and partnerships that do not comply can be effectively frozen out of U.S. capital markets because of a 30 percent withholding tax on their income from the United States, even if there are no US citizen beneficial owners.

The FATCA regulations exempt many categories of FFIs from the requirement to register and report, including most governmental entities, most non-profit organizations, certain small, local financial institutions, and certain retirement entities
FFIs include, but are not limited to:

• Depository institutions (for example, banks)
• Custodial institutions (for example, mutual funds)
• Investment entities (for example, hedge funds or private equity funds)
• Certain types of insurance companies that have cash value products or annuities

Unless otherwise exempt, FFIs that do not both register and agree to report face a 30% withholding tax on certain U.S.-source payments made to them. An FFI that registers on the “FATCA Registration Website” (“Website”), upon approval, will receive a Global Intermediary Identification Number (GIIN) from the IRS, unless the FFI is treated as a Limited FFI.

There will be significant work for businesses classifying legal entities eg. what type of FFI or Non-participating FFI is each entity? Also banks will be requiring further certification from the legal entity as to their status – new forms will no doubt be required as new forms are issued by the IRS. As an example the one page W-8BEN form for entities is due to be replaced by a W-8BEN- E which is six pages long.

The U.S. Department of the Treasury is negotiating intergovernmental agreement (based on reciprocal and non-reciprocal model agreements) to implement the information reporting and withholding tax provisions. Currently on 5 Model 1 IGAs are in effect, and 2 Model 2 IGAs. Many more are under negotiation.

For businesses operating in different jurisdictions it is very difficult to determine how to apply the legislation, and deal with the multi-jurisdictional issues. This is particularly the case while the explanatory notes to each IGA determine the precise mechanisms to be adopted for each country.

Delay to implementation
An original implementation date of 1 January 2013 was proposed. That date was later postponed to 1 January 2014. In July of this year, the US Treasury Department announced the further postponement of the withholding tax regime until 1 July 2014. The 30% withholding tax deduction applicable against non- compliant Foreign Financial Institutions (FFIs) has been extended to the 1 July 2014. The first report on due diligence requirements under FATCA continues to be due in 2015 and must include information about accounts opened and maintained for both 2013 and 2014.
This leaves less than seven months remain before penalties start to bite. A the letter, signed by the American Bankers Association, The Clearing House Association LLC, the Institute of International Bankers and the Securities Industry and Financial Markets Association stated that "This is insufficient time to achieve the effective, full implementation of FATCA" .

The government has stated that in addition to signing FATCA with the US it will look to sign further similar agreements with other jurisdictions as part of their commitment to combat tax evasion. The Crown Dependencies (Isle of Man, Guernsey and Jersey) and the British Overseas Territories (the Cayman Islands, the British Virgin Islands, Bermuda, Anguilla, Turks and Caicos Islands, Montserrat and Gibraltar) have all agreed to enter into automatic tax information exchange agreements with the UK.

These agreements allow for automatic exchange of information concerning assets of UK residents held by Financial Institutions (widely defined) in these jurisdictions. There is a carve-out for UK resident non-domiciled individuals, but there will still be an exchange of certain information in their respect.

Gibraltar signed an IGA with the UK on the 21 November 2013 - the 'UK-Gibraltar Agreement to Improve International Tax Compliance'. Like the agreements with the Crown Dependencies, this is a reciprocal agreement. The agreement with Gibraltar is understood to be the only agreement between the UK and an Overseas Territory that is reciprocal.

G5 pilot project for automatic exchange
Initially announced in April 2013 by the G5 countries of the UK, France, Germany, Spain and Italy, the multi-lateral information sharing pilot will see tax information automatically shared between the participating jurisdictions.

37 jurisdictions have now signed up to the pilot. For example South Africa, Luxembourg, Liechtenstein, Malta, Greece, Iceland and Colombia have joined the G5 pilot project for automatic sharing of tax information.

As a result for instance information on UK taxpayers will be shared with HMRC from 2016 and this data will be used to identify and locate tax evaders, who will face strong penalties.

A number of disclosure facilities are in operation until this time, giving taxpayers an opportunity to settle their affairs before their information will be automatically shared.

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