The UK-US agreement, the first of its kind, follows a joint statement made in July 2012 by the governments of France, Germany, Italy, Spain, the United Kingdom and the United States, which set out a model intergovernmental agreement to improve tax compliance and to Implement Fatca.
Andy Bell, chief executive of platform providers AJ Bell said: “Given the low level of risk of tax evasion associated with UK pensions and ISAs it is to be welcomed that they have been excluded from the requirements. Fatca had been expected to cost the UK financial services industry billions of pounds to implement and this would inevitably have been passed on to the consumer in one way or another. This will significantly reduce that burden.
He added: “There are a few questions to be answered regarding the pension scheme exemption as it has been set at a very high level. It exempts schemes provided that they do not allow individuals to access benefits before age 55, except in cases of serious ill health. However there are valid circumstances, which most UK pensions allow, where some individuals can access their benefits earlier than this. It is to be hoped that these wrinkles will be ironed out in further guidance.”
The agreement sets out UK institutions and products which are seen as presenting a low risk of being used to evade US tax and are therefore effectively exempt from Fatca requirements:
- addresses legal barriers to financial institutions complying with Fatca;
- ensures that withholding tax will not be imposed on income received by UK financial institutions or on payments they make;
- ensures that the burdens imposed on financial institutions are proportionate to the goal of combating tax evasion; and
- establishes a reciprocal approach to Fatca implementation.
David Gauke, exchequer secretary to the Treasury, said: “This agreement demonstrates our commitment to working internationally to tackle tax evasion. It is the first of its kind and represents a significant step forward in the scope and nature of information exchange between governments. Furthermore, the changes we have achieved to Fatca implementation will provide significant benefits to UK financial institutions.”
The agreement has been laid before the Houses of Parliament and will undergo a 21 sitting day scrutiny period as part of the ratification process.
The Treasury statement added that financial institutions and other interested parties will now be consulted on the implementation of the Agreement in the UK and draft legislation will be published later in 2012.
Ian Sayers, director general at the Association of Investment Companies, said: "The treaty will simplify the process of complying with Fatca. The next priority is to implement the treaty in a way which minimises the compliance burdens placed on the UK’s financial services sector while allowing the tax authorities to meet their obligations under the treaty."
