Weekly Tax Update - Monday 13 February 2012

1. Private Clients

   1.1. US Foreign Account Tax Compliance Act (FATCA)

   The Government has issued a joint statement with the Governments of France, Germany, Italy, Spain and the United States, setting out an agreed approach to the US "FATCA" legislation, which aims to combat crossborder tax evasion. This focuses on an intergovernmental approach to information exchange, which addresses certain legal difficulties and compliance burdens that would otherwise arise for financial institutions affected by FATCA.

   In 2010 the United States enacted provisions commonly referred to as the Foreign Account Tax Compliance Act (FATCA), which introduce reporting requirements for foreign financial institutions (FFIs) with respect to certain accounts. France, Germany, Italy, Spain and the United Kingdom are supportive of the underlying goals of FATCA. FATCA, however, has raised a number of issues, including that FFIs established in these countries may not be able to comply with the reporting, withholding and account closure requirements because of legal restrictions. Because the policy objective of FATCA is to achieve reporting, not to collect withholding tax, the United States is open to adopting an intergovernmental approach to implement FATCA and improve international tax compliance.

   The possible framework for the intergovernmental approach is for:

1. The United States and a partner country (FATCA partner) would enter into an agreement pursuant to which, subject to certain terms and conditions, the FATCA partner would agree to:

   Pursue the necessary implementing legislation to require FFIs in its jurisdiction to collect and report to the authorities of the FATCA partner the required information; Enable FFIs established in the FATCA partner (other than FFIs that are excepted pursuant to the agreement or in US guidance) to apply the necessary diligence to identify US accounts; and Transfer to the United States, on an automatic basis, the information reported by the FFIs. 2. In consideration of the foregoing, the United States would agree to:

   Eliminate the obligation of each FFI established in the FATCA partner to enter into a separate comprehensive FFI agreement directly with the IRS, provided that each FFI is registered with the IRS or is excepted from registration pursuant to the agreement or IRS guidance; Allow FFIs established in the FATCA partner to comply with their reporting obligations under FATCA by reporting information to the FATCA partner rather than reporting it directly to the IRS; Eliminate U.S. withholding under FATCA on payments to FFIs established in the FATCA partner (i.e by identifying all FFIs in the FATCA partner as participating FFIs or deemed-compliant FFIs, as appropriate); Identify in the agreement specific categories of FFIs established in the FATCA partner that would be treated, consistent with IRS guidelines, as deemed compliant or presenting a low risk of tax evasion; Commit to reciprocity with respect to collecting and reporting on an automatic basis to the authorities of the FATCA partner information on the U.S. accounts of residents of the FATCA partner. 3. In addition, as a result of the agreement with the FATCA partner described above, FFIs established in the FATCA partner would not be required to:

   Terminate the account of a recalcitrant account holder; Impose passthru payment withholding on payments to recalcitrant account holders; Impose passthru payment withholding on payments to other FFIs organized in the FATCA treaty partner or in another jurisdiction with which the United States has a FATCA implementation agreement; 4. The United States, France, Germany, Italy, Spain and the United Kingdom would:

   Commit to develop a practical and effective alternative approach to achieve the policy objectives of passthru payment withholding that minimises burden. Commit to working with other FATCA partners, the OECD, and where appropriate the EU, on adapting FATCA in the medium term to a common model for automatic exchange of information, including the development of reporting and due diligence standards. www.hm-treasury.gov.uk/joint_intl_statement_fatca.htm 1.2. Entrepreneurs' relief – practical issues

   ICAEW Tax Faculty issued a Tax guide in February 2012 covering a number of technical queries on the operation of Entrepreneurs' Relief (ER) that were put to HMRC through the Capital Gains Tax Liaison Group. This note reflects the queries in section A (General queries) and HMRC's responses.

   It is understood that the HMRC guidance on ER (which can be found at CG63950 et seq of the Gains Manual) will be extended to cover most, if not all, of the issues raised in this guidance.

   All references are to TCGA 1992...