New US legislation aimed at combating tax evasion could be more onerous for UK charities than initially thought, Charity Finance Group has warned.
The Foreign Account Tax Compliance Act (Fatca) will require banks and other financial institutions to report on their US account-holders, including charities.
In September, the UK government signed an agreement with the US government that sought to simplify the compliance burden for UK charities. But CFG now says that after discussions with HMRC, it thinks the rules could still create an unnecessary administrative requirement, especially for those charities that operate in countries that are not compliant with Fatca rules.
CFG policy officer Melora Jezierska said that while the rules are still changing regularly, it appears likely that banks will require charities wanting to open a bank account to supply a Fatca number, which can only be obtained by registering with the US Internal Revenue Service (IRS).
Those charities that have “US connected persons” will have their details passed to the IRS by the banks via HMRC, and will have to provide documentation relating to these US connections.
And because charities receive money themselves, they too are deemed ‘financial institutions’ for the purposes of Fatca. Although the US has deemed UK charities to be ‘low risk’ in terms of tax evasion and therefore has exempted them from FATCA reporting requirements, they are still likely to have to provide a Fatca number to their own banks – and this means they will have to register with the IRS.
Jezierska said: “We think this will place an onerous administrative requirement on charities, which we do not believe is necessary. It is worth noting that while we do not believe that charities should be required to register, some charities, for example those with US investments or overseas operations, may find they want to obtain a Fatca number to make their status clear to financial institutions or other governments.”
Last week CFG held a fact-finding meeting on the issue with 11 charities and HMRC. Jezierska said a number of concerns were identified and these have been submitted to HMRC as a formal response to its consultation on Fatca.
