The UK Treasury department 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 Foreign Account Tax Compliance Act (FATCA) legislation, which aims to combat cross-border tax evasion.

FATCA, which is part of the US Hiring Incentives to Restore Employment Act of 2010, aims to combat tax evasion by US tax residents using foreign accounts. It includes certain provisions on withholding taxes and on the reporting of information by foreign financial institutions for US tax compliance purposes.  These give rise to certain legal difficulties and administrative burdens for financial institutions.

In order to address these issues, the Governments of France, Germany, Italy, Spain and the United Kingdom, with the support of the European Commission and the personal involvement of Commissioner Algirdas Semeta, have taken part in joint discussions with the United States Government to explore a practical way forward that supports the overall aim to combat tax evasion, while reducing the risks and burdens on financial institutions.

This intergovernmental approach to information exchange will therefore address certain legal difficulties and compliance burdens that would otherwise arise for financial institutions affected by FATCA. It focuses on the use of existing tax treaties for information exchange between tax authorities, rather than direct reporting by financial institutions to the US Internal Revenue Service.

Welcoming the joint statement, David Gauke, Exchequer Secretary to the Treasury, said:

“The Government is committed to tackling tax evasion, wherever it takes place.  This joint statement builds on the close cooperation of all the countries involved, and of the European Commission, in tackling cross-border tax evasion and provides a practical way forward that should reduce the burdens on the financial sector”.