A six-month delay in a US initiative set to lead to more tax investigations has had a knock-on effect on a similar arrangement between the UK and Crown Dependencies and British Overseas Territories.
The Foreign Account Tax Compliance Act (FATCA) aims to combat tax evasion by US tax residents using foreign accounts. It requires financial institutions outside the US to pass information about US customers to the Internal Revenue Services (IRS), the US tax authority, or face a 30 per cent withholding tax.
In September 2012, the UK and the US signed an inter-governmental agreement providing a way for UK financial institutions to comply with FATCA without breaching data protection laws, by passing information to HM Revenue & Customs (HMRC), which will then automatically exchange the information with the IRS.
However, on 12 July 2013 the US announced a delay of six months before FATCA begins, which means there will now be no reporting relating to 2013.
The UK has also agreed to enter into automatic tax information exchange agreements with the Crown Dependencies (the Isle of Man, Guernsey and Jersey) and the British Overseas Territories (the Cayman Islands, the British Virgin Islands, Bermuda, Anguilla, Turks and Caicos Islands, Montserrat and Gibraltar).
Now, following the FATCA delay, the UK government will apply the revised timeline to similar agreements signed with these countries. This means that reporting commitments for UK financial institutions will now start on 30 June 2014. Reporting will only affect accounts that exist on or after this date and 2014 will be the first year to which reporting applies.
With HMRC’s approach to offshore tax issues likely to create an enhanced risk of tax investigations, significant penalties and even prosecution, the six-month delay provides an opportunity for people potentially affected by these tax information exchange agreements to seek expert advice to clarify their position and take appropriate action.
Our specialists at Taxation-Investigation can help to clarify the taxpayer’s position and options, so they can make informed decisions about the best way forward. We can also assist in mitigating outcomes or presenting a robust defence where tax affairs are in order.
