United Kingdom And United States Conclude FATCA Intergovernmental Agreement

On September 12, 2012, the United Kingdom became the first government to enter into an agreement (the "Agreement") with the United States regarding the U.S. withholding tax regime commonly referred to as the Foreign Account Tax Compliance Act ("FATCA").1 The Agreement is based on the model "reciprocal" intergovernmental agreement published on July 26, 2012. A U.S. Treasury Department press release of September 14, 2012 states that the U.S. is in communication with several other governments and expects to sign additional bilateral agreements in the near future, as well as reiterating that the U.S. tax authorities are continuing work on finalizing the proposed U.S. Treasury regulations promulgated under FATCA.2

Following publication of the Agreement, the U.K.'s HM Revenue and Customs ("HMRC") issued a consultation document (the "Consultation") requesting comments on the implementation of the Agreement. The Consultation states that U.K. legislation implementing the Agreement is expected to be included in Finance Bill 2013.

A stated aim of the Agreement is to provide for the implementation of FATCA based on domestic reporting and to improve reciprocal information sharing between the two countries. The Agreement will enter into force when both countries have notified the other in writing that their respective internal procedures for entry into force have been completed.

Read this alert to learn more about the Agreement and its principal effects. If you would like to discuss the effect of the Agreement on your particular circumstances, or FATCA-related matters generally, please contact any of the lawyers listed on this alert or the member of the Proskauer Tax Group with whom you normally consult on these matters.

Main features of the Agreement

To summarise, under FATCA, most non-U.S. financial institutions, including investment funds, may enter into an agreement with the Internal Revenue Service ("IRS") to provide certain information concerning their U.S. account holders. Although entry into such agreement with the IRS is not technically mandated by the statute, failure to do so will result in a 30 percent withholding tax on U.S.-source income and gross proceeds and on certain "passthru payments", unless the financial institution is treated as "deemed compliant" with respect to FATCA.

The expected terms of such agreements and the associated diligence and reporting requirements raised concerns not only about the substantial compliance burdens for...