Out-Law News | 11 Apr 2013 | 9:38 am | 1 min. read
The agreement will be based on the five countries' model agreement to implement the Foreign Account Tax Compliance Act (FATCA) with the US, which was published in July 2012. In a letter to the European Commission (2-page / 117KB PDF), finance ministers said that the agreement would "provide a template" for a wider multilateral agreement. The UK, France, Germany, Italy and Spain will participate in the pilot.
"This is an important further step in the fight against tax evasion and represents the next stage in promoting a new standard in the automatic exchange of tax information," said David Gauke, Exchequer Secretary to the Treasury. "This builds on the agreements we have reached with the Isle of Man, Guernsey and Jersey and the discussions currently underway with the Overseas Territories."
FATCA is a US law designed to prevent tax evasion by US citizens using offshore banking facilities. It introduces reporting requirements for foreign financial institutions (FFIs) with respect to accounts held by US residents, irrespective of national privacy laws. Institutions which do not collect and report this information can be subject to a 30% 'withholding tax' on US source income and proceeds from the sale of US securities.
The UK entered into an inter-governmental agreement (IGA) with the US in relation to FATCA in September 2012. Under the terms of this agreement, UK FFIs will disclose information about US residents to HM Revenue and Customs (HMRC) rather than the US Internal Revenue Service and will not be subject to the withholding tax. The UK has since agreed automatic tax information exchange agreements with the Channel Islands and the Isle of Man, and is in similar discussions with the Overseas Territories including Bermuda and the British Virgin Islands.
Prime Minister David Cameron has previously stated that he wishes to explore options for greater levels of tax information exchange, particularly on a multilateral basis, as part of the UK's presidency of the G8. The UK heads the group of the world's richest countries this year.
Tax expert Phil Berwick of Pinsent Masons, the law firm behind Out-Law.com, said that taxpayers with assets or undisclosed bank accounts in the named jurisdictions should "regularise their tax affairs" now, before the information was automatically passed to HMRC under the new arrangements.
"It is highly likely that HMRC will use its criminal investigation powers into a selection of taxpayers when following up on the information provided by France, Germany, Italy and Spain," he said. "If HMRC investigates using its civil powers, the level of penalty charged can be punitive. There is still time to act, but taxpayers will never know when they are going to get a knock on the door from HMRC."