The United Kingdom has implemented the bilateral agreement tentatively agreed earlier this year with the United States to handle the reporting and withholding tax activities of the U.S. Foreign Account Tax Compliance Act (FATCA).
In February, the U.K. along with France, Germany, Italy and Spain signed an agreement saying they would collect FATCA information from so-called foreign financial institutions (FFIs) based in their jurisdictions, but the latest move marks the first country to formally implement the provisions of the agreement.
FATCA aims to identify U.S. individuals living in foreign countries and ultimately collect taxes from them. The act requires FFIs to register with the Internal Revenue Service (IRS) in the United States and report client information to the agency; FFIs that do not comply are subject to 30% penalties on U.S.-connected payments.
The reciprocal agreement with the U.K. means the two countries will collect and share FFI account-holder information with each other, ostensibly easing the reporting burden on FFIs as they would no longer have to register with the IRS.
Todays announcement marks a significant step forward in our efforts to work collaboratively to combat offshore tax evasion, says Mark Mazur, assistant secretary for tax policy at the U.S. Treasury, in a statement Friday. We are pleased that the United Kingdom, one of our closest allies, is the first jurisdiction to sign a bilateral agreement with us and we look forward to quickly concluding agreements based on this model with other jurisdictions.
The U.S. has claimed FATCA could plug a $100 billion tax gap, a figure that some industry figures have called into question.
Nevertheless, the Treasury envisions signing more agreements in the near future with other governments that have expressed an interest in doing so. Likely candidates would be the remaining four countries from Februarys agreement and potentially Australia, where legislators and superannuation industry figureheads have been lobbying hard for some sort of FATCA agreement over the past year.
Full details of how FATCA will be carried out have yet to be decided as U.S. lawmakers determine how the multifarious tenets of the legislation, along with Dodd-Frank, the JOBS Act and other recent financial regulations, will be implemented.
Christopher Gohlke