The Foreign Account Tax Compliance Act (FATCA) was introduced in the United States with the aim of combating tax evasion through the use of foreign accounts by their tax residents. Following the UK/US Inter Governmental Agreement (IGA) and section 222 of the Finance Act 2013 this now forms part of UK law. HMRC has subsequently published guidance on FATCA.
FATCA requires, amongst other things, that all relevant UK Trusts are registered with the US Internal Revenue Service (IRS). Once registered in this way, it is likely that regular returns will need to be filed with HMRC (which will liaise with the IRS), possibly detailing any US connections, assets or income that the relevant UK Trusts concerned may have.
The legislation has been described as ‘a sledgehammer to crack a nut’, as a result of its application to all relevant UK Trusts irrespective of whether or not they have any US connections or assets. For Trust purposes there are no de minimis levels.
All Trustees of UK Trusts will therefore need to review their UK Trusts particularly where they are holding financial investments managed by a third party. Where necessary, (unless a Corporate Trustee is acting, in which case they will deal with the necessary documentation) the Trustees will need either to:
Register the trust direct with the Internal Revenue Service (IRS); or
Set up an arrangement with a third party service provider.
However even where a third party service provider is used, the obligations under the legislation will remain with the Trustees. It is for that reason that we have decided that where necessary and where we are dealing with the matter, in particular where one or more of the partners are acting as a Trustee for the Trust, that we will register the Trust direct with the IRS.
The deadline for registration is the 25 October 2014. The IRS will issue a reference number (known as a Global Intermediary Identification Number or GIIN) on registration. Thereafter all further contact will be through HMRC here. HMRC should be issuing the return form and further guidance shortly and it is hoped that in many cases a nil return may suffice.
Failure to comply with the legislation could result in withholding tax of 30% and/or sanctions from HMRC. Time is running out and therefore it is essential that you act now.