US Foreign Account Tax Compliance Act (FATCA) – FATCA creates a new tax information reporting and withholding regime for payments made to certain ‘Foreign Financial Institutions’ (FFIs) and other ‘foreign’ persons. The definition of FFI is very broad and includes funds. Failure to report could result in 30% withholding tax being deducted from U.S. source income and payments.

Implementation of FATCA is phased, and the first changes are now due to take effect from 1 July 2014, with certain withholding requirements also taking effect from 1 July 2014. It is understood that more than 80 countries, including the UK Crown Dependencies, are in the process of negotiating Intergovernmental Agreements (IGAs) with the US.  The purpose of the IGAs is to ensure that FFIs will:

• Not be required to enter into an FFI agreement, but instead will be directed by local legislation to comply with FATCA;
• Have reduced or no withholding tax and withholding obligations, and;
• Report on relevant accounts to their national tax authority, not direct to the IRS.