FATCA - Share Schemes and EBTs
The term "FATCA" has been in circulation for what seems like a very long time. However, recent developments have substantially altered the landscape of FATCA in the United Kingdom. The US Hiring
The term "FATCA" has been in circulation for what seems like a very long time. However, recent developments have substantially altered the landscape of FATCA in the United Kingdom.
The US Hiring Incentives to Restore Employment Act 2010 (known as "HIRE"), introduced the Foreign Account Tax Compliance Act – FATCA. The genesis of FATCA is the desire by the Internal Revenue Service (IRS) to combat tax evasion by US persons through the use of undeclared non-US accounts.
To meet the IRS' policy objective, FATCA seeks to make foreign (as in non-US) financial institutions ("FFIs") its information gatherers, imposing extensive reporting requirements. FFIs will include certain banks, funds, insurers, trusts, partnerships and other institutions holding investments, money or property for the benefit of others. FATCA's reach extends across the globe and its operation is complex - this blog does not attempt to explore all of the issues around FATCA.
On 12 September 2012 the UK and US governments signed a bilateral agreement setting out the framework for UK FFIs to comply with FATCA by providing information to HMRC rather than directly to the IRS, although it is likely that UK FFIs will have to register with the IRS directly. Other countries, although by no means all, have entered into or are proposing to enter into similar or comparable agreements with the US. However, if you are not a UK entity, or have a non-UK entity in your group or acting as a trustee, then you will need to consider the relevant local jurisdiction's position on FATCA in addition to the UK-US bilateral agreement. As the UK-US agreement has a "most favoured nation" clause, it is likely that the UK FATCA regime will be as good as or better than other FATCA regimes in different jurisdictions.
Whether the new rules apply to you will depend on whether you are an FFI. In the context of share schemes and EBTs, the most likely category is whether there is a "Custodian Institution". This means an entity that holds, as a substantial portion of its business, financial assets for the account of others. There are complexities in this definition, but until there is HMRC guidance, expected towards the end of the year, it is wise to err on the side of caution.
There are certain categories of exempt products, to which the FATCA reporting rules will not apply. These include:
The fact that these are specifically excluded from the FATCA regime could suggest that other comparable products, including EMI option schemes, EBTs and unapproved share schemes, are within the regime. The analysis is not certain at this stage and it is something which HMRC are looking at in the context of their guidance on the new regime and its implementation.
At present, therefore, there is a risk that such schemes will fall within the UK's FATCA regime. Indeed, HMRC have informally confirmed that EBTs are in principle intended to be within the regime. Each case will of course turn on its own facts.
Reports will be due in respect of the calendar year 2013 and each subsequent year, and so it is now time critical to get a FATCA compliance framework and analysis in place.
This means that anyone operating such arrangements will need to consider carefully whether FATCA applies and if so whether they have the systems and contractual arrangements in place to meet their reporting and compliance obligations. Where it is uncertain whether FATCA applies in a given case, consideration should be given to approaching HMRC to lobby for the guidance to clarify the intended position.
I attend, on behalf of the Employee Ownership Association, the HMRC FATCA sub-group considering these issues. Further developments are expected in this area and I will keep the tax blog updated with the latest news.
The term "FATCA" has been in circulation for what seems like a very long time. However, recent developments have substantially altered the landscape of FATCA in the United Kingdom.
The US Hiring Incentives to Restore Employment Act 2010 (known as "HIRE"), introduced the Foreign Account Tax Compliance Act – FATCA. The genesis of FATCA is the desire by the Internal Revenue Service (IRS) to combat tax evasion by US persons through the use of undeclared non-US accounts.
To meet the IRS' policy objective, FATCA seeks to make foreign (as in non-US) financial institutions ("FFIs") its information gatherers, imposing extensive reporting requirements. FFIs will include certain banks, funds, insurers, trusts, partnerships and other institutions holding investments, money or property for the benefit of others. FATCA's reach extends across the globe and its operation is complex - this blog does not attempt to explore all of the issues around FATCA.
On 12 September 2012 the UK and US governments signed a bilateral agreement setting out the framework for UK FFIs to comply with FATCA by providing information to HMRC rather than directly to the IRS, although it is likely that UK FFIs will have to register with the IRS directly. Other countries, although by no means all, have entered into or are proposing to enter into similar or comparable agreements with the US. However, if you are not a UK entity, or have a non-UK entity in your group or acting as a trustee, then you will need to consider the relevant local jurisdiction's position on FATCA in addition to the UK-US bilateral agreement. As the UK-US agreement has a "most favoured nation" clause, it is likely that the UK FATCA regime will be as good as or better than other FATCA regimes in different jurisdictions.
Whether the new rules apply to you will depend on whether you are an FFI. In the context of share schemes and EBTs, the most likely category is whether there is a "Custodian Institution". This means an entity that holds, as a substantial portion of its business, financial assets for the account of others. There are complexities in this definition, but until there is HMRC guidance, expected towards the end of the year, it is wise to err on the side of caution.
There are certain categories of exempt products, to which the FATCA reporting rules will not apply. These include:
- Save As You Earn Share Option Schemes
- Share Incentive Plans
- Company Share Option Plans
The fact that these are specifically excluded from the FATCA regime could suggest that other comparable products, including EMI option schemes, EBTs and unapproved share schemes, are within the regime. The analysis is not certain at this stage and it is something which HMRC are looking at in the context of their guidance on the new regime and its implementation.
At present, therefore, there is a risk that such schemes will fall within the UK's FATCA regime. Indeed, HMRC have informally confirmed that EBTs are in principle intended to be within the regime. Each case will of course turn on its own facts.
Reports will be due in respect of the calendar year 2013 and each subsequent year, and so it is now time critical to get a FATCA compliance framework and analysis in place.
This means that anyone operating such arrangements will need to consider carefully whether FATCA applies and if so whether they have the systems and contractual arrangements in place to meet their reporting and compliance obligations. Where it is uncertain whether FATCA applies in a given case, consideration should be given to approaching HMRC to lobby for the guidance to clarify the intended position.
I attend, on behalf of the Employee Ownership Association, the HMRC FATCA sub-group considering these issues. Further developments are expected in this area and I will keep the tax blog updated with the latest news.