The UK
and US have signed a tax agreement to ensure that the US’s controversial FATCA Act legislation can be
enforced while curbing compliance costs, the UK government said yesterday.

The deal will, according to HM Treasury, address the fears of
financial institutions worried that imposing the FATCA Act rules will drive up
regulatory burdens on an industry already facing heavy compliance costs in the
wake of the 2008 crisis.

The act, which was signed into law in 2010 and takes effect
in stages over the next few years, is designed to catch expat US citizens who might be trying to evade the
worldwide system of tax enforced by the US. In particular, the act requires
foreign financial institutions – a broad term – to establish the nationality of
their clients and source of investments or else pay a 30 per cent withholding tax.
As a result, some global financial institutions, such as HSBC, DBS and Deutsche
Bank, have reportedly ceased to provide services to US expats. (To view an
article on the issue, click here.)

The Association Of Investment Companies, a group which represents the UK's listed investment trusts sector, welcomed the announcement. “The treaty will simplify the process of complying with
FATCA. It recognises that Venture Capital Trusts and investment trust
companies may not raise the same concerns where tax evasion is concerned
and creates a mechanism to exempt them from reporting where they meet
certain conditions," said Ian Sayers, AIC director general. “The
next priority is to implement the treaty in a way which minimises the
compliance burdens placed on the UK’s financial services sector while
allowing the tax authorities to meet their obligations under the
treaty.”

Obtaining information

The agreement “also boosts HMRC’s ability to obtain
information from the US to
help in tackling UK
tax evasion,” a statement from HM Treasury said. The pact follows a joint
statement issued in July by governments of France,
Germany, Italy, Spain,
the UK and the US.

The UK-US agreement “addresses legal barriers to financial
institutions complying with FATCA,” HM Treasury said. The deal will ensure that
withholding tax will not be imposed on income received by UK financial
institutions or on payments they make and ensure that burdens imposed on
financial institutions are proportionate to fighting tax evasion, it added.

The agreement will be scrutinised in the UK parliament;
draft legislation will be published later this year.