HMRC confirms six-month delay to tax information exchanges with Crown Dependencies and Overseas Territories

By added on 16/08/2013

Financial Institutions in the Crown Dependencies (CDs) and the British Overseas Territories (BOTs) will no longer have to provide information relating to 2013, after HM Revenue and Customs (HMRC) confirmed that the start of information exchange agreements would be delayed, reports Out-Law.

The department announced the amended timeframe on its website alongside the publication of new regulations that will delay the commencement of the exchange of information with the US under the Foreign Accounts Tax Compliance Act (FATCA) until 30 June 2014. This followed the issue by the IRS on 12 July 2013 of Notice 2013-43 which announced a six month delay for when FATCA withholding begins and delayed other timelines for implementing FATCA.

The Government announced in May that all BOTs and Crown Dependencies with significant financial centres had committed to the introduction of information-sharing arrangements mirroring those included in FATCA. It issued a consultation document in June on how the agreements would be implemented.

The effect of the delay is that financial institutions will no longer have to provide information relating to 2013. Information for the 2014 and 2015 calendar years will still have to be exchanged by the respective CD/BOT governments no later than 30 September 2016. The consultation document proposes that financial institutions should be obliged to supply information relating to 2014 and 2015 to the tax authorities in their jurisdiction by 31 May 2016.

Tax expert Reg Day of Pinsent Masons, the law firm behind, said that it was not clear until HMRC's announcement, whether the FATCA six month delay would apply to the UK's agreements with the CDs/BOTs.

"The current approach by HMRC to offshore tax issues creates significant risk of very substantial penalties and possible prosecution of those who do not act to clear up any unpaid tax for the past so the delay will provide some further time to seek advice and help to ensure that any such risk is minimised," he said.

Holding an offshore bank account is not illegal and can be used for legitimate tax planning, especially by non-domiciled individuals. However, taxpayers are obliged to disclose funds held in offshore accounts that are subject to UK tax to HMRC.

FATCA is a US law designed to prevent tax evasion by US citizens using offshore banking facilities. It introduces reporting requirements for foreign financial institutions (FFIs) with respect to accounts held by US residents, irrespective of national privacy laws. Institutions which do not collect and report this information can be subject to a 30 per cent 'withholding tax' on their own US source income and sales proceeds. An inter-governmental agreement (IGA) entered into between the US and UK last year means that when FATCA comes into force, UK FFIs will disclose information about US residents to HMRC and will not be subject to the withholding tax.

Under the terms of the recent Memorandum of Understanding between the UK and the BOTs and CDs, 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 BOTs and CDs have also committed to greater transparency in relation to company ownership.

UK financial institutions will have reciprocal reporting requirements in relation to the CDs: 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.