Magazine claims draft legislation exists already
The United Kingdom government rejected calls by the International Development Committee of the House of Commons for a British version of the United States Foreign Account Tax Compliance Act, which would require tax authorities to exchange information relating to UK citizens or corporations.
Responding to an IDC report, “Tax in Developing Countries: Increasing Resources for Development”, the government said it does not regard the introduction of FATCA in the UK as an appropriate means of tackling tax evasion. Alternatively, the government sees transparency and information exchange in partnership with other governments as the more appropriate strategy.
“FATCA is unilateral and extraterritorial in its approach and has created significant difficulties for the US, as well as affected countries in its implementation,” the response to the recommendation said.
Beginning in 2014, the US Foreign Account Tax Compliance Act will force financial institutions around the world to identify American taxpayers among their clients, customers and investors and report their account balances to the US Internal Revenue Service. Organisations that refuse to share the information will be subject to a 30 per cent withholding tax on transactions with counterparties in the United States.
The government’s response, in turn, highlighted the UK’s involvement in the Group of Twenty Finance Ministers and Central Bank Governors, European Union and Organisation for Economic Cooperation and Development as the more appropriate way to deliver progress in international tax transparency and to substantially increase levels of information exchange.
Depending on the circumstances, the UK government pursues different tax transparency strategies based on exchange on request, spontaneous exchange and automatic exchange, the statement said, quoting the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters, as a cost effective way to access the benefits of information exchange.
“The UK, as a party to the convention, has sought to ensure that the criteria for joining the convention are such that they do not act as a barrier to entry to developing countries. The aim of this overall approach is to develop a comprehensive network of tax information exchange agreements, which will enable the UK and others to gain access to relevant information held in other jurisdictions.”
Financial magazine International Tax Review, meanwhile, claimed that contrary to this public rejection of FATCA, it has seen a copy of draft legislation, through which the UK government would impose the automatic exchange of tax information on Crown Dependencies and Overseas Territories, including the Cayman Islands.
The information that would have to be exchanged under the draft legislation, according to International Tax Review, includes individual account numbers, balances at the end of the reporting period, name of the account holder and full details of beneficial owners of companies or trusts if these are registered as the account holders.
The idea that other countries will follow the US with FATCA-like legislation is not new. India has passed legislation similar to FATCA, which targets countries it does not have tax information exchange agreements with. However, the Indian government has as yet not given any guidance as to the implementation or the enforcement of the law.
The Cayman Islands is already subject to the EU Savings Tax Directive. As a result the number of accounts that EU citizens have with financial institutions in the Cayman Islands and the aggregate savings income are automatically reported to the respective tax authorities in Europe and the European Commission. In 2010, the Cayman Islands Tax Information Authority reported an aggregate amount of less than $7 million in 7,161 accounts.