Financial institutions asked to shape implementation of overseas tax compliance agreements

It is asking UK financial institutions for their views on how new reciprocal information exchange arrangements will impact on them (52-page / 219KB PDF), as well as what regulations and guidance will be needed to implement the agreements.

HMRC's discussion document is the first formal consultation on the implementation of the information exchange agreements, announced by the UK Government in May. Once finalised, they will be closely modelled on the Foreign Accounts Tax Compliance Act (FATCA), a US agreement which introduces reciprocal reporting requirements for foreign financial institutions (FFIs) with respect to accounts held by national residents overseas.

Tax expert Reg Day of Pinsent Masons, the law firm behind Out-Law.com, said that financial information relating to this calendar year would need to be reported by 30 September 2016 at the latest, once the agreements were signed.

"Offshore trust companies and corporate service providers will fall within the definition of a financial institution for reporting purposes," he said. "The information which they will be required to report will, in some cases, draw HMRC's attention to an offshore structure for the very first time. This will lead to inevitable enquiries from HMRC, and the law in relation to offshore structures is so complex and has changed so much in recent years that mistakes are often made."

"Trustees and corporate service providers should consider turning a risk into an opportunity by using the time available between now and September 2016 to proactively review the structures they administer to identify, review and resolve any tax uncertainties, 'grey' issues or technical matters in advance of the proposed exchange of information. Under current tax disclosure regimes, such issues can be discussed with HMRC on a 'no names' basis to provide reassurance and certainty for clients wither in advance of a tax disclosure or FATCA reporting," he said.

Under the terms of the recent Memorandum of Understanding between the UK and the Crown Dependencies, offshore financial institutions have until the end of this year to write to their clients and draw their attention to the tax disclosure facilities that will be in place until 30 September 2016, he said.

Once the agreements are in force, HMRC will automatically receive greater levels of information about bank accounts held by UK taxpayers in participating jurisdictions. This will include names, addresses and dates of birth; account numbers and balances and details of payments made into those accounts. It will also include information on certain accounts held by entities, such as offshore trusts. All of the UK Crown Dependencies and overseas territories have also committed to greater transparency in relation to company ownership.

UK financial institutions will have reciprocal reporting requirements in relation to the Crown Dependencies: Isle of Man, Guernsey and Jersey. These agreements will require domestic legislation to implement the agreements in the UK so that information will flow in both directions. The proposed arrangements between the UK and those overseas territories with financial centres will not be reciprocal and so will not require new UK legislation. The participating overseas territories are Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, Montserrat and the Turks and Caicos Islands.

According to the discussion document, the new agreements will mirror FATCA arrangements between the UK and US, and the Crown Dependencies and overseas territories and the US, as much as possible. This is intended to "minimise the additional costs and burdens to businesses from the increased reporting requirements", according to the document. However there will be some differences due to "differences in context". These will include an option for Crown Dependencies and overseas territories to provide an alternative reporting regime to individuals who are resident but not domiciled in the UK, and who are taxed on the 'remittance' basis rather than the 'arising' basis.

HMRC will publish a Tax Information and Impact Note, which will include an estimate of the impact on UK businesses from the new reporting requirements, alongside draft UK legislation, it said. It expects that the new regulations will be enacted towards the end of 2013, according to the discussion document. HMRC has asked financial institutions for details of the expected increase in their administrative burdens as a result of the new requirements, to inform the impact note.

The consultation period will end on 6 September.