HM Treasury: Model Intergovernmental Agreement On Implementing FATCA

HM Treasury has released a joint statement issued by the French, German, UK, Spanish, Italian and US governments, announcing the publication of the model intergovernmental agreement to improve tax compliance and to Implement the US Foreign Account Tax Compliance Act (FATCA).

The publication of the model agreement follows a joint statement by the relevant governments in February 2012 concerning an intergovernmental approach to implementing FATCA. The model agreement establishes a framework for reporting by financial institutions of certain financial account information to their respective tax authorities, followed by automatic exchange of such information under existing bilateral tax treaties or tax information exchange agreements.  It also aims to address the legal issues that had been raised in connection with FATCA, simplify its implementation for financial institutions and provide for reciprocal information exchange.

The agreement will potentially reduce the costs of FATCA reporting obligations by providing for an exchange of relevant FATCA information between FATCA partners and the IRS. The new system will therefore no longer oblige financial institutions to report directly to the IRS and instead, financial institutions will need to report to their local tax authority which will then be responsible for reporting to the IRS.

HM Treasury has announced that the model agreement (amongst other things) is intended to:

  • address the legal barriers to compliance with FATCA reporting – specifically the issues surrounding local confidentiality and data protection laws;
  • prevent withholding tax from being imposed on income received by UK financial institutions (unless they are required to report certain information in respect of certain US tax payers and fail to do so); and
  • align the due diligence requirements more closely to the requirements under the existing anti-money laundering rules.

Negotiations with specific FATCA partners and the US will now commence and the UK government expects to publish a consultation on the UK implementation of the model agreement, with the aim of producing draft legislation later in the year.

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