The UK Treasury has reached out to some neighbouring offshore jurisdictions as part of a bid to create tax exchange agreements that would mirror the US’ Foreign Account Tax Compliance Act (FATCA).
FATCA requires foreign financial institutions, which include non-US private equity firms with US investors, to enter into an agreement with US tax authorities in order to provide periodic reporting of accounts held by US taxpayers. Firms failing to comply face a hefty 30 percent withholding tax on certain payments travelling outside the US.
The UK approached the offshore jurisdictions due to increasing interest from the Organisation for Economic Co-operation and Development and the European Union in the wider application of FATCA principles, according to a joint statement from the Chief Minister of Guernsey, Peter Harwood, and the Chief Minister of Jersey, Ian Gorst.
This is not the first time that the UK has revealed a desire to bolster its tax exchange agreements. In August the UK's International Development Committee (IDC) recommended the UK government: “…introduce legislation similar to the relevant section of FATCA”.
Officials from the Crown Dependencies, including representatives from Guernsey and Jersey, held a meeting with UK tax authorities last week to better understand the UK proposals and further discussions are expected.
Last month the Crown Dependencies strengthened their efforts to comply with the US’ FATCA by reaching out to US tax authorities to negotiate an intergovernmental model agreement.
It is expected that they would want to sign a “Model I” agreement, like the UK did earlier this year, but Guernsey Finance head Fiona Le Poidevin could not give details to how the negotiations were proceeding.
In an interview with PE Manager last month Le Poidevin said: “In terms of the way in which the intergovernmental agreement between Guernsey and the US will work in practice, then I'm afraid all we can say is that it will work along similar lines to the UK and US agreement. Obviously, precise details still to be concluded.”
For a more in-depth look at how the back office professionals are grappling with FATCA, make sure not to miss PE Manager's FATCA roundtable held earlier this year.