Last month the UK Government signed an agreement with the United States intended to improve tax compliance and implement the Foreign Account Tax Compliance Act (FATCA) provisions. As a result HMRC have now launched a consultation on the implementation of the agreement in the UK.

The UK-US agreement follows the Joint Statement made in July 2012 by the governments of France, Germany, Italy, Spain, the United Kingdom and the United States, announcing the publication of the Model Intergovernmental Agreement to Improve Tax Compliance and to implement FATCA.

The signing of the agreement follows the conclusion of negotiations on the UK-specific Annex II. This 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.

The UK-US agreement is closely based on the Model Agreement, and:

• 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.

The agreement has been laid before the Houses of Parliament and will undergo a 21 day sitting scrutiny period as part of the ratification process.

An important point to note is that, as previously mentioned, the agreement is also reciprocal, the US Treasury having recently issued final “bank deposit” interest regulations that will substantially increase the amount of information the US collects, which they will then share with the UK where it concerns UK residents.

The UK consultation just launched sets out how the Government intends to legislate to deliver the commitments made in the UK-US FATCA Agreement and seeks views on the proposed approach; comments are requested by 23 November 2012.

A similar initiative is underway in Ireland, and it will be very important to ensure that equally flexible terms and conditions are extended by the US to Ireland as they have been to the UK.