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HMRC - FATCA implementation regulations

We strongly support the inclusion of credit unions as “Non-Reporting United Kingdom Financial Institution” under the category of “Financial Institutions with a Local Client Base” and the more-lenient treatment that this will afford the credit union sector under FATCA and the IGA.  This is entirely appropriate given the local nature of credit unions which operate within a restricted membership base.
We strongly urge HMRC, however, to go further and establish a category for “Non-Registering Local Banks” for small British credit unions and banks as allowed by the US Internal Revenue Service’s FATCA regulation.   

The IRS’s “Non-Registering Local Bank” compliance requirements would place fewer regulatory burdens on British credit unions than the proposed rules and we believe that credit unions subject to the UK’s FATCA IGA should have parity with credit unions which are subject to the IRS’s rules.  We do not see any policy reason why the UK should impose FATCA reporting requirements which are more stringent than the US government’s FATCA rules.

Indeed, pursuant to Article 7 and Annex I.1.C of the IGA, where more lenient treatment is available under the US Regulation then this should be applied under the IGA too.  As such, credit unions in the UK should be permitted to comply with the UK’s FATCA rules in a manner equivalent to the requirements “Non-Registering Local Bank” codified at Treasury Regulations § 1.471-5(f)(2)(i) in the US’s FATCA Regulation.  This category explicitly applies to credit unions and would allow those under $175 million, operating solely in the UK and not soliciting business abroad to neither register nor monitor their accounts for FATCA purposes.

We are however concerned that the Non-registering local bank category as currently presented by the US Regulation does not permit application of the category by firms that have websites which permit account opening since, they consider, such websites amount to soliciting business outside of the jurisdiction.  We contest this, however, since many small, local firms have such facilities on their websites in the current context despite the fact that credit unions have a restricted group from which they draw their membership and therefore cannot solicit business from those outside of their jurisdiction.  We would urge the UK authorities to raise this perverse outcome with the US.

We also identify a series of more minor discrepancies between the US Regulation and the IGA which we feel ought to be rectified in order that the UK provisions to not “gold plate” FATCA compliance here. Likewise we have identified a number of practical matters and vagaries which we would appreciate consideration of and possible clarification.

The full response can be downloaded on the right hand side.