Guernsey to agree 'FATCA style' reporting with UK, says Guernsey's chief minister

The proposed 'tax package' with the UK is designed to "reinforce Guernsey's commitment to tax transparency and its status as a leading and respected mainstream international finance centre". It will include an agreement to report tax information about UK resident account holders along FATCA principles through an Intergovernmental Agreement (IGA), There will be alternative reporting arrangements for non-domiciled UK tax residents (non-doms).

Guernsey's Treasury and Resources minister, deputy Gavin St Pier, said: "Securing a proportionate and workable non-dom reporting regime is clearly pivotal. The arrangements we have negotiated are non-intrusive and respect non-doms' different status under UK tax laws."

The Foreign Account Tax Compliance Act (FATCA) is a US law designed to prevent tax evasion by US citizens using offshore banking facilities. FATCA introduces reporting requirement for foreign financial institutions (FFI) 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 their own US source income and sales proceeds. However, the US and the UK entered into an inter-governmental agreement (IGA) last year which means that UK FFIs will disclose information about US residents to HMRC rather than the US Internal Revenue Service and will not be subject to the withholding tax.

The announcement of the 'tax package' with the UK comes as Guernsey moves towards concluding an IGA with the US on FATCA.

As a Crown dependency, Guernsey, like Jersey and the Isle of Man, needs the UK's agreement before it can enter into an IGA with the US.

Phil Berwick, a tax investigations expert from Pinsent Masons, the law firm behind Out-law, said that it was understandable that the UK would want to ensure that it could get hold of information about UK residents with accounts in Guernsey, if Guernsey was going to agree to give the US information about US resident account holders under FATCA.

An agreement was announced in December 2012  between the UK and the Isle of Man to allow the UK and the Isle of Man to automatically exchange a wide range of information on account holders due to pay tax in the other jurisdiction on a reciprocal basis.

The UK Government also announced a disclosure facility in February, providing a mechanism for those with Isle of Man accounts to regularise their affairs. It will offer guaranteed penalty rates to taxpayers who voluntarily disclose liabilities arising from April 1999. Taxpayers who do not use the facility will be subject to "significantly higher penalties" once the automatic information exchange begins in April 2013, the Government said.

Phil Berwick said "The Guernsey facility was to be expected, following on from the agreement reached with the Isle of Man. Other jurisdictions will fall into line in the coming months."

Holding an offshore bank account is not illegal and can be used for legitimate tax planning, especially by non-domiciled individuals. However, taxpayers are obliged to disclose funds held in offshore accounts that are subject to UK tax to HM Revenue & Customs (HMRC).

The final terms and details of Guernsey's enhanced reporting agreement and the alternative reporting arrangements for non-domiciled individuals will be published "in due course" and will be subject to consultation with industry on implementation issues.

"The agreement is expected to mirror the Isle of Man facility, although we will need to wait for the detail." said Berwick.

"Offshore account-holders with UK tax problems should seek help now. The Liechtenstein Disclosure Facility remains a favourable way to resolve matters." he said.

The Liechtenstein Disclosure Facility (LDF) enables taxpayers with UK tax irregularities connected to a bank account, investment or structure in Liechtenstein to settle their tax affairs on favourable terms. Those who do not currently have an account in Liechtenstein, but have an offshore account located elsewhere, can now bring themselves within the LDF by acquiring a bank account or similar connection in Liechtenstein.

The announcement states that it is intended that both the US IGA and the UK IGA will be published concurrently "to provide for a streamlined consultation and implementation process".