International: The Foreign Account Tax Compliance Act and Common Reporting Standard

Question 1

Briefly explain what the Foreign Account Tax Compliance Act (FATCA) is

Answer 1

1. US law to prevent tax evasion by US citizens using offshore banking facilities.
2. FATCA created tax information and reporting and withholding regime to gain information about US persons rather than to raise revenue.
3. Applies to non-US financial institutions.
4. Imposes at 30% withholding tax on US source income paid to non-US financial institutions.
5. Non-US financial institutions can enter into an agreement with the US Internal Service (IRS) and disclose information about their US account holders

Question 2

In 2012, UK and the USA entered into an intergovernmental agreement. Briefly explain what this is.

Answer 2

1. Allows UK financial institutions to meet their FATCA obligations.
2. UK financial institutions should report information to His Majesty’s Revenue and Customs (HMRC)
3. HMRC then supplies this information to the IRS.
4. For non-UK clients funds e.g. Irish UCITS funds - reporting is done via the Irish tax authority

Question 3

What are some of the requirements of FATCA?

Answer 3

1. Requires all foreign financial institutions (FFIs) to provide information about the US customers to the IRS based on the FII agreement entered between the FFI and the IRS
2. If it enters into an FFI agreement, the FFI is known as a “participating FFI”
3. If it doesn’t enter into an FFI agreement, its a “non-participating FFI”
4. For non-participating FFI - 30% withholding tax charges are applied to certain payments made to it

Question 4

Reporting to the IRS takes the form of an annual report on each US-reportable account. The information provided should include the following details:

Answer 4

1. Name, address and US taxpayer identification number of each specified US person that is an account holder.
2. Year-end account balance or value.
3. Total gross amount of interest credited to the account.
4. Total gross amount paid/ credited to the account holder in the case of any other account.

Question 5

What is the CRS - Common Reporting Standard?

Answer 5

1. An information standard for automatic exchange of tax and financial information on a global level.
2. Based on the FATCA.
3. Purpose is to combat tax evasion.
4. Overseas financial institutions obliged to provide details to the HMRC about anyone who owns foreign investments and appears to be a UK resident.

Question 6

Under the CRS, what types data is reported to the HMRC?

Answer 6

1. Personal identification details - name, address, DoB
2. Account numbers.
3. Year-end valuations and balances.
4. Interest credited.
5. Proceeds of assets sold.