Out-Law News | 05 Feb 2014 | 2:49 pm | 2 min. read
Tax expert Reg Day of Pinsent Masons, the law firm behind Out-Law.com, said that more work was needed on the guidelines. He said that those affected by FATCA in the crown dependencies needed to see the draft enabling regulations to properly understand their obligations under the US Foreign Account Tax Compliance Act (FATCA) and similar style exchange of information agreements entered into with other countries.
FATCA is a US law designed to prevent tax evasion by US citizens using offshore banking facilities. It requires financial institutions outside the US to provide information to the US tax authorities regarding accounts held by US nationals. Financial institutions who do not agree to provide this information will suffer a 30% withholding tax on payments of US source income.
Countries including the UK and its crown dependencies have entered into inter-governmental agreements (IGAs) with the US so that they can provide information to the US to comply with FATCA without breaching confidentiality or privacy laws. Agreements with the US are commonly referred to as US FATCA, and agreements between the crown dependencies and the UK that allow similar exchange of information are commonly known as UK FATCA.
Financial institutions in the crown dependencies seeking to comply with FATCA have to consider IGAs and the accompanying enacting regulations and guidance.
The draft guidance seeks to clarify any areas of uncertainty for crown dependencies in US FATCA and UK FATCA rules. The draft guidance, issued on 31 January, is open for consultation with the intention that a revised draft will be issued by 31 March. The crown dependencies have not released their draft regulations which are to accompany the guidance, although these are expected soon.
"Any form of guidance is welcomed, and this draft guidance has confirmed much of what we thought about how FATCA would operate in the crown dependencies, however, it could still be better," said Pinsent Masons' Day. "It is disappointing that the draft guidance is not split more clearly between the obligations financial institutions in the CDs have under US FATCA and the obligations they have under UK FATCA."
"It is confusing that the draft guidance enables financial institutions to use a definition in the relevant US regulations in lieu of a corresponding definition in the IGA whilst at the same time confirming that the financial institution must apply the crown dependencies regulations in force at the time and can't automatically apply an element of the US regulations, or another IGA, if it provides for a more beneficial position," Day said. "It is also not ideal that we have not yet seen a draft of the crown dependencies regulations so we are still missing a piece of the jigsaw."
"Although we hope the final draft of the guidance will address some of our concerns, businesses and trusts with overseas accounts who are trying to minimise the potential compliance costs of FATCA will want definitive answers to practical considerations that will be contained in the crown dependencies regulations, which have not yet been published sooner rather than later," Day said