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HMRC internal manual

International Exchange of Information Manual

Background: FATCA

Financial Accounts Tax Compliance Act

In 2010 the United States of America enacted the Foreign Account Tax Compliance Act provisions (FATCA) which are contained in the HIRE Act 2010. These provisions are aimed at reducing tax evasion by US citizens and entities.

FATCA requires Financial Institutions outside the USA to pass information about their USA customers to the US tax administration, the Internal Revenue Service. The legislation allows for a 30% withholding tax to be applied to the US source income of any non-US Financial Institution that fails to comply with this requirement. This caused a number of issues for UK Financial Institutions not least of which was how they could comply with the requirements of FATCA without breaching data protection restrictions.

On 12 September 2012 the UK and the USA signed a Treaty to implement FATCA in the UK – “The UK-US Agreement to Improve International Tax Compliance and to Implement FATCA” (the US IGA). Legislation at section 222 Finance Act 2013 provides HM Treasury with powers to make regulations to give effect to this and other similar agreements. The US IGA was brought into force by the The International Tax Compliance (United States of America) Regulations 2014, which were subsequently incorporated into the International Tax Compliance Regulations 2015 (SI 2015/878). These regulations impose obligations on UK Financial Institutions to identify, capture and report information to HMRC on financial accounts held by US citizens and entities. Provided these Financial Institutions comply with the requirements of the legislation they will not be subject to the 30% withholding tax on US source income.

Interaction with US Regulations

The UK regulations implement the IGA as it has effect from time to time.   The Agreement now has different effect in the following respects since it was signed in September 2012.

Annex II has been updated by a mutual agreement entered into between the competent authorities of the UK and the US (made under the mechanism in Article 8 of the Agreement). The changes result in a wider scope of institutions and products effectively exempt from the FATCA requirements, and provide greater clarity on the categories of institutions which are Non-Reporting UK Financial Institutions under the Agreement. The Agreement is now also to be read as if it contained the changes announced by the US on 12 July 2013 with regard to the revised timeline regarding the implementation of FATCA (Notice 2013-43).  Where appropriate these changes are reflected in the current UK regulations that came into force on 15 April 2015.  Businesses and their advisers should note that where the UK regulations refer to actions or requirements in the Agreement the relevant text should also be read accordingly. For example when undertaking the appropriate due diligence in respect of a pre-existing entity account, Section IV paragraph B of Annex 1 of the Agreement should be read as if the relevant date therein refers to 30 June 2014 and not 31 December 2013.

A Financial Institution must apply the UK regulations in force at the time with reference to the published HMRC guidance. However  where a Financial Institution identifies an alternative element of the US regulations or alternative element of a different Intergovernmental Agreement that it feels it would like to apply then it should contact HMRC to discuss the issue.

If the US authorities subsequently amend the underlying US regulations to introduce additional or broader exemptions, HMRC will consider whether to incorporate these changes into its regulations or guidance.  HMRC will publish any updates on its dedicated automatic exchange of information webpage and make any subsequent changes to the regulations or guidance as required.