On Friday, the UK became the first country to finalise a tax information-sharing pact with the United States, as the Americans crack down on offshore tax evasion.
The agreement is part of the U.S. Treasury’s efforts to implement the 2010 Foreign Account Tax Compliance Act (FATCA). It requires foreign institutions to tell the U.S. Internal Revenue Service about Americans’ offshore accounts worth more than $50,000, or £30,830.
Under the terms of the agreement, the burdens on UK Banks, funds and other financial companies will be reduced and it will also boost HM Revenue & Custom’s (HMRC) ability to obtain information from the United States for help in tackling tax evasion.
The deals are aimed at creating a new global regulatory system to prevent Americans from dodging taxes through foreign accounts, including a plan to obtain US taxpayer information through foreign governments.
The FATCA rules require foreign financial institutions to start reporting detailed information about US account holders to the Internal Revenue Service in coming years. If the firms don’t comply, they could face US tax penalties.
The agreement follows the Joint Statement made in July 2012 by the governments of France, Germany, Italy, Spain, the UK and the US, announcing the publication of the Model Intergovernmental Agreement to Improve Tax Compliance and to Implement FATCA.
The changes in the agreement should provide significant benefits to UK financial institutions and will now undergo a 21 sitting day scrutiny period in Parliament as part of the ratification process. Financial institutions and other interested parties will now be consulted on the implementation of the agreement in the UK and draft legislation will be published later in 2012.