UK Businesses set to pay £2 billion to Comply with Fatca
According to HMRC British businesses will have to fork out up to £2 billion in compliance costs to meet the requirements of US FATCA tax avoidance law over the next five years.
I suspect that even this massive figure is under estimated.
The costs take into account businesses buying new IT systems, setting up compliance systems, staff training and carrying out a detailed risk assessment.
The UK was the first country to sign up to the Foreign Account Tax Compliance Act (FATCA) and is leading the way in Europe with similar tax laws aimed at netting wealthy individuals and corporations that try to shift their profits and earnings offshore to avoid tax In the country where the income was generated.
After the first five years according to HMRC, the annual cost will drop to between £50 million and £90 million a year.
HMRC expects to spend £5 million in-house on aligning technology and data with FATCA, with projected ongoing costs of £1.4 million from 2016.
FATCA compliance involves British financial institutions registering with the US Internal Revenue Service, identifying customers who are US taxpayers and reporting details of their finances to the IRS every year.
The tax information exchange agreements bypass legal problems for financial institutions called on to pass personal and financial data to the US. Without the agreement, the institutions, like banks and fund managers could be in breach of data protection and privacy laws.
Penalties for failing to supply information about accounts with balances of $50,000 or more can lead to fines and penalties in the US.
International tax co-operation will not stop with FATCA’s introduction in January 2014.
The British government has already started discussing tax information sharing with a list of leading tax havens that are Crown Dependencies or British Overseas Territories, who have readily indicated their agreement to take part in the exercise: –
The Isle of Man
The Cayman Islands
British Virgin Islands
The Turks and Caicos Islands
Meanwhile, Britain, France, Germany, Spain and Italy are also negotiating a pan-European FATCA law based on the US model.
Whilst I don’t believe FATCA will be a world event it seems some countries are determined to pay whatever it takes to share information.
Nigel Green deVere Group
Blog written 17th June