US / UK sign FATCA agreement

It's official,
http://www.hm-treasury.gov.uk/press_82_12.htm

The actual agreement:
http://www.hm-treasury.gov.uk/d/facta_agreement_tax_compliance_140912.pdf

It appears the agreement is reciprocal. If you have any interest bearing accounts in the US which you were/are supposed to be telling HMRC about, but haven't as of yet, it's time to do some serious contemplating.

What does this mean for the individual?

I notice that certain UK accounts eg ISAs are not US reportable by UK institutions. I assume they are still reportable if owned by a US individual.

If the UK is going to bring in some forms that specifically deal with foreign accounts I wouldn't be too bothered. Right now it's a bit of a free for all with you having to write notes on returns to declare accounts and claim relevant treaty exemptions. Of course as a UK resident you should have been declaring all relevant US accounts and paying any UK tax due anyway.....right

The US Treasury wants US financial institutions to report information on all foreign accounts to the IRS so that it can reciprocate on FATCA. However, the House voted to block this because it realises that the US itself is the biggest tax haven in the world and the US will see a huge outflow of money if they introduce this.

So it seems more than likely that this agreement will be entirely one-sided i.e. the UK gives info to the US but not vice versa. Rather like the extradition agreement. Just once in a while it would be nice to see the UK tell the US no.

What does this mean for the individual?

In theory, it should not change anything if the individual has been reporting to both the IRS and HMRC as required.

It's far beyond my pay scale to decipher the agreement, but on a quick read through, it could have been worse. For the armature eye, it appears the Building Societies may gain favourable treatment, but is that only the stand alone Societies? Many are owned by one of the Big 4 banks. Hopefully, it will mean USCs in the UK will have somewhere to deposit savings at a decent return even if the big banks turn nasty. I'll leave it to the professionals to offer an opinion.

It also appears that certain pension funds may also receive favourable treatment.

It also appears that an individuals account in place before 31 Dec. 2013 will be treated as a "preexisting individual account".

So it seems more than likely that this agreement will be entirely one-sided i.e. the UK gives info to the US but not vice versa. Rather like the extradition agreement. Just once in a while it would be nice to see the UK tell the US no.

I read the book "Whoops" by John Lanchester (subtitled: "Why everyone owes everyone and no one can pay"). I hope I am remembering this correctly, but I believe it was his contention that pre the banking bust, the UK had ceded regulation of certain 'US' traders located in the UK to the SEC. Of course, one of the largest was Lehman Brothers in London. So yes, like you, I'm surprised the UK has taken the US's word for it, yet again, that all will be well.   

The return of Congress, and possibly a debate point in the upcoming elections, could certainly be the 'reciprocity' of the FATCA agreements and its impact on the US banking system. Even with the IRS regulation requiring the US banks to report, it seems a bit premature to guarantee country specific information exchange. The interesting point that was noted in the press release (or was it in the preamble to the agreement?) is that all the increased reporting will be done within the various already existing agreements between the US and UK.

You may have already come across this, but there's a paper by Itai Grinberg from Georgetown University Law Center discussing the global information exchange of banking information. Take a look at page 10, it gives an overall breakdown of where offshore money comes from. A small percentage of North American, Western European, and Japanese money is offshore. Latin America, the Middle East, and Africa has the largest amounts of money offshore. No prizes for guessing where (and in which states) a large amount of that money might be deposited.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1996752&rec=1&srcabs=1969123
It's a free download.       

Hopefully this will make the US citizen's UK financial life a bit easier, or at least less worrying. Many UK financial institutions don't have to report and accounts like pensions, ISAs and national savings are deemed compliant too. So there should be no overhead for a building society associated with a US citizen opening an ISA.

The Equalities Act of 2010 forbids discrimination on the basis of race, which specifically includes nationality or national origin. If any UK financial institution discriminates against UK resident, US persons then they are liable for prosecution under the act. Unless, of course, the UK government cravenly adds an "unless you are an American" amendment to the act.

Be nice if the U.K. banks issued a 1099 and changed to calendar year reporting for those deemed to be specified persons’! Self-certification maybe the only way for the banks to know if you're a specified individual, (U.S. & U.K. citizen, U.K. Resident ). With varying high/low balances, spread across multiple accounts, it all sounds very messy and complex to me.

The Equalities Act of 2010 forbids discrimination on the basis of race, which specifically includes nationality or national origin. If any UK financial institution discriminates against UK resident, US persons then they are liable for prosecution under the act. Unless, of course, the UK government cravenly adds an "unless you are an American" amendment to the act.

You can discriminate if there's a good reason and as far a legislation goes, they can usually find a 'good' reason

I go back to a question I posed earlier. What does this mean for the individual.

The agreement seems to be for institutions to provide guidance and exception to reporting.

What will happen in the case of a US citizen living in the UK and having US retirement and equity accounts at a US brokerage like Fidelity or T.Rowe price etc. Does Fidelity have to look for UK residency indicators and report those accounts to HMRC?

What will happen in the case of a US citizen living in the UK and having US retirement and equity accounts at a US brokerage like Fidelity or T.Rowe price etc. Does Fidelity have to look for UK residency indicators and report those accounts to HMRC?

As far as brokerage accounts, Article 1(1)(j) gives the definition of an Investment Entity; 1(1)(p) defines Reporting US Financial Institution; 1(1)(g) defines a Financial Institution (includes an "Investment Entity").

In the entire 42 page document, there is only one section that I can find that relates to accounts in the US which must be reported to the UK, and that's Article 2(2)(b). Under that section, (5) specifies "gross amount of US source dividends paid or credited to the account" for UK identified accounts of each Reporting US Financial Institution. At this point, it would appear that there may be some uncertainty as to who will actually report to the IRS on UK identified accounts (interest bearing accounts - yes, but others - ?).

In other words, I have no idea. You may be able to translate all this to a higher understanding.

EDIT:
Article 2(2)(b)(6) refers to "chapter 3 or 61 of subtitle A of the U.S. Internal Revenue Code for other reportable U.S. source income.

It's not a done deal quite yet as the agreement has to go before Parliament. I plan to write to my MP to propose two modifications:

1. All accounts registered as UK tax resident should be exempt from reporting. These accounts, by definition, do not belong to tax evaders. The UK should not facilitate the levying of US tax and penalties to be subtracted from the UK economy.

2. The US should implement the same procedures for US domestic financial institutions. Should they fail to do so, the agreement become void.

I shall point out that I am all in favour of ending international tax evasion but that the UK should avoid one-sided agreements like the extradition treaty. My MP is a LibDem who fiercely opposed the Iraq war - maybe he can get some traction.

My MP is a LibDem who fiercely opposed the Iraq war - maybe he can get some traction.

Sorry, "LibDem....traction", that's one of the funniest things I've read in a while.

Really the idea that the IRS expects there to be tax evaders with money in UK accounts is pretty laughable. You'd have to be pretty dumb to use the UK as a tax haven. The whole agreement seems to be a way to get the UK financial institutions off the hook from a great deal of FATCA reporting. As the UK does not yet have it's own version of FATCA there's no reason for US institutions to have much to do with the agreement. If the UK goes ahead with it's own FATCA then presumably the agreement will be amended and the reporting requirements for US institutions will be expanded, that's if it ever gets past Congress.

OK, let's have some fun.
Talking Points, a starter for 10:

Reasons to agree: UK Parliament
1 Reduction of tax evasion by resident UK individuals with unreported US accounts (and the political 'gain' of being seen as taking action). A big one!
2 The creation of jobs at HMRC (improve unemployment figures).
3 Appease banks by eliminating threat of 30% with holding by the US on US source funds (better for the economy).
4 Government does reporting by use of agreement. (Assumes US enforces FATCA. If no agreement; all UK FI's must report to IRS without an IGA and annexes, privacy laws become an issue in future for Parliament.)
5 Those with a US reportable UK account are required to do so under existing US law.
6 Those with a UK reportable US account are required to do so under existing UK law (those who are resident in the UK and file on the arising basis).
7 The UK gains respect for being a leading player on the global crackdown of international tax evasion.
8 If the reference to Chapter 3 of subtitle A of the Internal Revenue Code (as I read it  ) includes all US source income that would be subject to reporting on a 1040NR, then the agreement is not totally one sided in favour of the US.  

Reasons to disagree: UK Parliament
1 The creation of jobs at HMRC (UK Budget can not support the additional cost).
2 Cost of implementation for UK banks with US Reporting obligations. This is becoming less of a vocal argument from the UK banks, or perhaps they're just giving in, and hope to make the best (or the most profit available) from an inevitable situation.
3 Cost to the UK public at large in fees or reduced interest as banks seek to reclaim the costs associated with FATCA.
4 Increased cost to HMRC in collecting, sorting, and forwarding data, but will be countered by arguments that revenue will increase to cover these costs (the popular US argument).
5 Circumvention of privacy laws.
6 The reciprocal data for 'UK Persons' does not exist today in the US, and there are no guarantees that it will be available in the future (US Congressional actions).
7 'Unaware UKC's that are also USC's' (low value/high value accounts) will be tossed to the lions without a reasonable IRS programme to solve their lack of US compliance problems, and the economic consequences for the individual.
8 HMRC receives data on all UK accounts of UK residents (including tax free accounts). With respect to UK accounts for those resident in the UK, there (should be) a low risk of tax evasion. (US would argue that US tax evasion might be a consideration, given the right circumstances, for those with US reporting obligations, even though the UK will collect at higher tax rates. It's hard to argue against this given the large number of UK tax free options, and ISAs are exempt from reporting*  .)
9 Will it be a true peer to peer endeavor?

Consequences for the USC resident in the UK:
Positive:
1 Ahh....Mmmm....well, the warm feeling from knowing that international tax evasion is being reduced.

Negative:
1 Parliament has no reason to be of concern where a long term resident of the US, now resident in the UK, is delinquent in their IRS compliance.
2 Threat of the reduction in banking options may still arise for 'US Persons', or fees attributable to FATCA may increase the cost of US Person accounts, or reduce income. (I personally don't think the discrimination argument is substantial, and can be circumvented.)

Open to all comments (and rejections) from "I couldn't care a toss", to "unfortunately under Title 26....", to "It's American exceptionalistic Imperialism". If, even with the agreement, a threat remains for US Persons to lose some current banking options or profits, perhaps Weller is right. Weller might be right on the general principles alone. No one in the wider UK public understands the situation better than those on this site. Perhaps some may want to speak up if so inclined. But, be careful, a USC resident in the UK objecting to a US tax agreement may be viewed as having ulterior motives. Any arguments must be substantial from a UK perspective. A real catch 22.

IMHO (cynic), money will always seek ways and places to grow. There must be some bright spark in some rouge state figuring ways around global reporting.

Sorry for the length!

EDIT:
* An ISA is still a reporting requirement for a USC on their US 1040 return. It's not reportable (exempt) for an FI for the purposes of reporting to the US by the agreement. (IMHO. I could be wrong.)

You'd have to be pretty dumb to use the UK as a tax haven. The whole agreement seems to be a way to get the UK financial institutions off the hook from a great deal of FATCA reporting. As the UK does not yet have it's own version of FATCA there's no reason for US institutions to have much to do with the agreement.

The UK is a tax haven to anyone except a US person. The non-domicile rules allow rich foreigners to pay tax only on money brought into the UK while they keep the bulk of their funds in other tax havens to spend on their jet-setting lifestyles. These people need pay no tax to their home countries. And then there's the Crown Dependencies and Overseas Territories which are surely tax havens.

The UK doesn't need a FATCA to expect the US to provide info on UK residents with accounts in the US. The US already has such an agreement with Canada which they could easily have extended to other countries. But instead of pursuing this diplomatic route, they unilaterally imposed the threat of banking sanctions on the rest of the world. No wonder the USA is so well-liked around the world!