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FATCA

FATCA is a piece of US legislation which seeks to ensure that that country’s citizens are fully disclosing their worldwide income to the US Internal Revenue Service (IRS).

The UK signed a treaty with the US in September 2012 and then introduced legislation, section 222 Finance Act 2013, which obliges UK entities to report the information required by the US to the UK authorities who will then transmit that information on to the US.

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This means that the reporting obligation is under UK law and you have to make appropriate returns to HMRC. 

If you do not meet these obligations you will face financial (and reputational) penalties. 

The UK FATCA obligations apply not just to professional firms with a financial services practice but also to firms which act as, or for, trustees whether through a trust company or as individuals. 

In the words of Lisa Spearman, head of the Tax Faculty Private Client Committee: 

‘FATCA applies whether or not you have US clients. It's all to do with what sort of entity you are, or act for. It potentially affects every accounting practice, particularly tax practices.’

Practical guidance on the UK implications of FATCA 

In early May 2014, ICAEW along with STEP (Society of Trust and Estate Practitioners) and the Law Society published guidance summarising the key aspects of FATCA with a particular focus on the issues which are relevant to the practitioner and the actions they need to take to ensure they meet their obligations under UK law. 

Section 3 of the guidance covers the impact of FATCA for trusts. 

We have summarised this guidance in an article which first appeared in the September 2014 edition of TAXline: this included an updated version of the Flowchart to which there is a direct link below.

HMRC has also produced detailed guidance on FATCA, most recently in August 2014. A link to the latest guidance is provided below. This guidance will next be updated in February 2015.

Webinar

A webinar on 26 September 2014 was led by George Hodgson, Deputy Chief Executive of STEP and Lisa Spearman, Chair of Tax Faculty Private Client Committee. They explained some of the key issues raised by FATCA. These included FATCA and what FATCA means in practice, what is a ‘Financial Institution’ for FATCA purposes?, how to register with the IRS and the consequences of not registering, reporting to HMRC, changes you will need to make to the way your run a professional practice and, finally, the FATCA timetable.

Registration with the IRS is the deadline you need to worry about

The first thing you need to decide is whether you, or the entities for which you act, have to register with the IRS quite apart from any reporting obligations to HMRC. The requirement to register does not depend on you having US clients or US connections. Registration needs to have been completed by 31 December 2014, although our recommendation was that you began the registration process no later than 25 October 2014.

Questions and Answers

In addition to the Guidance to members, to which a link is provided below, in October 2014 we also produced a short Q&A summarising the questions and answers in the Guidance and, in addition, providing answers to questions that arose during the course of the September webinar and in contact with members.

What about trusts etc in other countries?

By the final quarter of 2014, more than 40 countries had signed Inter-Governmental Agreements (IGA) with the US, along similar lines to the IGA signed by the UK. These are known as Model One IGAs. STEP with whom ICAEW works closely to coordinate the advice and guidance given to their respective members has produced a generic guidance note about such agreements as a number of the countries with such agreements have not yet produced their own domestic guidance. You can view this guidance, and a relevant flow chart, by clicking on the links at the end of this section and we are grateful to STEP for allowing us to include this information, and link, on our own FATCA page.

Sources of guidance