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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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