01.00 – Background

The Foreign Account Tax Compliance Act provisions (commonly known as FATCA) are contained in the HIRE Act 2010. These provisions are US legislation aimed at reducing tax evasion by US citizens.

FATCA requires Financial Institutions outside the US to pass information about their US customers to the US tax authorities, the Internal Revenue Service (IRS). A 30% withholding tax is imposed on the US source income of any Financial Institution that fails to comply with this requirement.

On 12 September 2012 the UK and the US signed a Treaty to implement FATCA in the UK (“The UK-US Agreement to Improve International Tax Compliance and Implement FATCA”) referred to hereafter as the Agreement. The Agreement and the legislation introduced to enact it will remove some of the implementation problems faced by UK Financial Institutions, for instance, the legal difficulty of complying without breaching data protection restrictions. As such UK based Financial Institutions should not be subject to a 30% withholding tax on US source income unless they fail to meet the requirements set out in the Agreement and UK legislation.

Under the terms of the Agreement, UK Financial Institutions will provide HMRC with the required information. HMRC will then forward that information to the US Internal Revenue Service.

The UK legislation bringing into effect the implementation of the UK-US Treaty is contained in clause 222 of Finance Act 2013. This clause provides HM Treasury with powers to make Regulations to give effect to the Agreement (and other similar Agreements). The Regulations (The International Tax Compliance (United States of America) Regulations 2013) can be accessed on HMRC’s website at http://www.hmrc.gov.uk/fatca/index.htm