FATCA implemented in Russia, the UK and South Africa

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In the UK amendments have been made to the offshore funds regulations that affect alternative investment fund managers operating as a partnership and having partners who elect to allocate their profit share to the alternative investment fund manager under the deferred remuneration provisions. HM Revenue & Customs published a list of arrangements disclosed under the Disclosure of Tax Avoidance Schemes (DOTAS) regime on which accelerated tax payments may be charged. UK financial institutions are now operating within the requirements of the intergovernmental agreement with the United States to implement the FATCA regime, and the equivalent agreements with the Crown Dependencies and Overseas Territories. HMRC published draft guidance concerning a change to the rules for determining the market value of shares and securities for tax purposes.

Russia’s central bank issued a Bulletin on July 10, 2014 concerning the rules for implementing the FATCA legislation. Legislation to implement the FATCA regime in Russia was signed into law on June 30, 2014. FATCA states that a foreign financial institution must inform the Russian tax authority of the account details of Russian citizens (including the account of entities controlled by them).

Financial institutions, in turn, must identify who are foreign taxpayers among their clients and report this information to the respective tax authority.

When a financial institution in a FATCA supported country suspects that a client is a foreign taxpayer, and this client does not provide certain information about this status or refuses to issue a consent on the reporting the necessary information to the IRS, the financial institution may close the account. Non-compliance results in a fine of $30,000.

The stated purpose of the law is ‘‘to clamp down on tax evasion and improve taxpayer compliance by giving the IRS new administrative tools to detect, deter, and discourage offshore tax abuses.’’ FATCA is expected to raise $7.6 billion in tax revenue over a 10-year period. But what does this mean for business owners who have legitimate offshore companies in countries such as Russia and the UK?