UK FATCA regulations

The draft UK statutory instrument implementing FATCA recently released by HMRC (SI) reads more like know-your-client (KYC) or enhanced anti-money laundering (AML) legislation than pure tax legislation. That is for two main reasons. First, some of the withholdings threatened by the US FATCA rules have been removed under the inter-governmental agreement with the US (IGA). Second, the regulations do not deal with what is going to happen in 2017 and onwards and it is therefore unclear whether the UK will ever introduce so-called rules on "passthru" withholding. The IGA does not entirely rule out the fact that this could be imposed in certain scenarios, albeit that the final position will not be clear for a while.

For the moment that leaves the SI providing a set of rules that require so-called "reporting financial institutions" (RFIs) to perform certain enhanced KYC checks (on a very prescribed basis) on those who either hold "financial accounts" as at 31 December 2013 or open them thereafter. RFIs will then have to pass certain information to HMRC in relation to such accounts, with the first such return being due on 31 March 2015. The information will then be passed by HMRC to the Internal Revenue Service (IRS) in the US.

There is then a second set of rules requiring the reporting to HMRC of certain payments made by RFIs to so-called "non-participating financial institutions" as from 1 January 2015.

Thus the SI comprises one large set of extra KYC and reporting obligations. As a result, we have spent more time discussing this with compliance departments than tax departments for the last month.

The consultation period in relation to the SI has thrown up some odd points. For example, somewhat oddly in our view, corporate brokers constitute reporting financial institutions and may have to report on certain of their investors. There are a number of other areas where lobbyists are asking for clarification of the SI or for help through guidance. Some of that may be achievable but the terms of the IGA may limit scope for manoeuvre in some cases.

Please click on the links below for the other articles in the February 2013 tax newsletter.

• HMRC publishes settlement opportunity
• Secret Hotels2 Ltd -v- HMRC: Court of Appeal
• HMRC -v- Charlton: FTT case on discovery assessments and possible defences
• Taylor Clark Leisure plc: VAT groups and repayment claims
• R (Prudential plc & another) -v- Special Commissioner of Income Tax: Supreme Court judgment on legal advice privilege
• HMRC -v- Anson: Court of Appeal rules on the tax transparency of Delaware LLCs
• VAT on acquisition costs following the Court of Appeal decision in BAA -v- HMRC
• Proposed financial transaction tax