FATCA is a pivotal development in US and UK efforts to improve tax compliance concerning foreign financial assets and offshore accounts. Whether you believe this number or not, the wheels are rolling.
The UK signed an agreement to implement FATCA rules in September last year. The Isle of Man led the way in widening the net for greater transparency on international tax issues by being the first small jurisdiction to participate in both the US and UK FATCA, plus the first of the Crown Dependencies to commit to the EU Pilot.
This was the catalyst in precipitating signatures from the Overseas Territories, Guernsey and Jersey on automatic exchange of information agreements with London. Under FATCA, UK taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets.
But few outside the “techies” are watching the current three way wrestling match on the ground rules for global automatic exchange.
A quick history
Rarely have things moved so quickly in politics, well at least not since the former UK Prime Minister Tony Blair days with a policy announcement accompanying every day’s breakfast cereal.
Early last year, a host of countries decided to enter into negotiations with the US on FATCA, the Foreign Account Tax Compliance Act; an agreement to share an automatic exchange of information with the US. On December 9 last year, the Isle of Man broke ranks and also agreed with the UK to provide the same information with due changes appropriate for the UK’s tax position, effectively providing automatic exchange on UK resident accounts with the UK Government.
The moral compass has shifted in the pursuit of revenues, but the right to privacy of the individual should and must be protected. Our view is that international centres should sign up rather than remain a continual scapegoat for financial ills; most have no more reason to hide tax information than any of the major onshore centres.
Since then, many countries have entered negotiations both with the US (and some with the UK), formalising Model 1 inter-governmental agreements. Now at an advanced stage with Annex 1, which defines the type of information we exchange and Annex 2, work continues on what is exempted from that automatic exchange.
Changing Attitudes
From a local perspective, the Isle of Man has seen a very positive and practical working relationship with the UK, with representatives from the HMRC over to the Island to assist both ourselves – and industry – in interpreting some of the technical clauses. The UK Government has also provided what is called an Isle of Man Disclosure Facility for those people who need to regularise their taxation affairs.
But on the wider stage for other jurisdictions, there is a schism is starting to form over the right way to proceed…..
There is the so-called EU 5 (now the c 19!) which believe an EU FATCA pilot is the best way to proceed. Then there is the EU Commission which wishes to progress with European Savings Directive 2, now that those vetoing are crumbling into submission because of a cleverly worded clause in the Mutual Assistance EU Directive. Then we have the NGO’s and charities and their support for global mutual assistance in taxation matters, which would effectively globalise the exchange via the OECD.
The political posturing is failing to understand the significance to the UK of the Crown Dependencies and Overseas Territories to the UK economy and in particular the City of London. It appears that the convergence of 1) and 2) will probably win but the third sector pressure seems to have the ear of Downing Street.
The uncertainty of the future is probably best summed up by David Jessop, director of the Caribbean Council, who has written a comment piece for the Jamaica-Gleaner. He states “as matters stand, the UK is hoping that its overseas territories and crown dependencies will agree to demonstrate publicly at an event on June 15 that they intend making the changes that Britain requires….Under the present poorly defined circumstance, this may be wishful thinking."
I found fascinating the following quotation from a recent ECOFIN meeting: “[We] welcome in that context that France, Germany, Italy, Spain and the UK have agreed to work on a pilot multilateral exchange facility using the model agreed with the US as the basis for this multilateral exchange with the aim of contributing to the creation of a new global standard.”
Further along in the same meeting, it states; “The Overseas Territories and the Isle of Man have also committed to early participation in this new standard and Guernsey has also expressed a strong interest. Jersey has yet to commit to the pilot.” Are the major nations listening?
Clearly those who are in will be in and those who are out will face consequences…
John Spellman is the Isle of Man’s director of financial services
