The Foreign Account Tax Compliance Act (FATCA) is part of a larger piece of legislation introduced in the United States in 2010 to ensure that that country’s citizens are fully disclosing their worldwide income to the Internal Revenue Service (IRS). The key point is that as a result of the UK-US intergovernmental agreement (IGA), the legislation is now part of UK law through s222 Finance Act 2013 and the regulations issued under that section. There are consequences for default – both financial and reputational.
FATCA has been introduced to put a reporting burden on the payer of monies as another way of protecting the US tax base. All UK entities are subject to the UK rules and solicitors may be asked for their clients’ FATCA status with the usual AML and client identification processes when dealing with other institutions, such as banks and stockbrokers.
The effect of the legislation is to place an obligation on Financial Institutions (FIs) (banks, stockbrokers and other financial intermediaries which includes most Trusts) to inform the IRS when any sums are paid to or for a US person, regardless of where in the world that payment is made. Additionally, the IRS must be assured that the FI has adequate systems in place to identify and record US Persons. If there is a failure to report or any other non-compliance with the FATCA regime the FI will be in default. It is understood that penalties may be imposed and any sums paid to the FI in the USA will be subject to penal rates of withholding taxes (30%), which the FI may have to bear, rather than the client.
All trusts are caught by FATCA irrespective of whether or not they have US persons as settlors, trustees or beneficiaries or US assets. Trustees and their advisors must assess each Trust to ascertain whether or not the Trust has to report under FATCA. If a Trust has a Corporate Trustee, for example your firm’s Trustee Company, then you should register it with the IRS and obtain a Global Intermediary Identification Number (GIIN).
To comply with FATCA and make the necessary information returns Trust will also have to register with HMRC and obtain a Revenue Identification Number (RIN). Information on this process is available at http://www.hmrc.gov.uk/fatca/reporting.htm
Failure to comply by either registering with the IRS, obtaining a GIIN and providing that where necessary, or becoming an owner documented trust by completing the necessary forms with the brokers who are providing that service will probably mean that solicitors may not be able to open or operate bank accounts, or employ stockbrokers on behalf of Trustees etc.
Solicitor (or directors, administrators and trustees) may have direct UK legal obligations that must be met to avoid both financial (and reputational) penalties.
The full guidance is available at http://www.hmrc.gov.uk/drafts/uk-us-fatca-guidance-notes.pdf
Solicitors should consider;
1) “Know your client”
In addition to the usual know-your-client information, solicitors may need to determine if the client has any US connections and record the information carefully.
2) Client identification
Whether or not a person is a US person will be determined by the use of so-called US indicia.
These include the following:
• US citizenship or lawful permanent resident (green card) status;
• A US birthplace;
• A US residence address or a US correspondence address (including a US PO box);
• Standing instructions to transfer funds to an account maintained in the United States, or directions regularly received from a US address;
• An ‘in care of’ address or a ‘hold mail’ address that is the sole address with respect to the client; or
• A power of attorney or signatory authority granted to a person with a US address
3) Engagement letters
It is important to ensure that engagement letters set out clearly the ambit of the work. If acting for a trust or other FI client, solicitors should be clear on whether or not there is a need for compliance with FATCA and who is going to be responsible for compliance.
Further sources of information are
Journal Article Working for Uncle Sam