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that it is very unlikely that artificial ‘subsale’ schemes will continue to be promoted and to the extent there is further abuse this can be easily challenged using existing mechanisms.
• Save for the three proposed changes referred to below, we think the current rules should be left as they are – we do not therefore support either of the options canvassed in the Consultation Document. Our proposed suggested changes being as follows:
•
a Tax Law Rewrite-style redrafting of section 45 FA 2003, including splitting out “subsale” and “assignment” cases. The current drafting of section 45 is incredibly poor. As drafted, it can be difficult to advise on. This is apparent from the two reported cases in section 45, where half a page of tax legislation has been subject to tens of pages of judicial analysis on its true meaning.
•
recast the tailpiece to sub- section 45(3) FA 2003 (substantial performance or completion of “A-B” contract disregarded) as a complete exemption but require B to make a claim to HMRC for the exemption. This would allow HMRC to police claims and root out abusive transactions. This claim could be in a land transaction return completed by B or for simpler administration for taxpayers and HMRC in a new subsale exemption claim form submitted by B, containing details of the A-B and B-C transactions.
•
put it beyond any doubt that section 75A FA 2003 applies for the purposes of section 45 (even though we think it is clear that this is already the case – see for example section 75A(3)(b)).
In November, we commented on the 18 September 2012 HMRC Consultation on Implementing the UK-US FATCA Agreement (the “Agreement”). In summary, we made the following
general points in addition to responding to the specific technical queries raised:
• We think it should be an overriding policy of the implementing legislation that it is intended to minimise the cost and administrative burden of FATCA to UK businesses and should therefore not (ultimately) impose any obligations which go beyond those in the US FATCA law and regulations themselves. For data protection and other reasons it may be necessary for the implementing legislation to include elections concerning which data to report in order to achieve this objective.
• Some members of the CLLS represent large multinational financial institutions which anticipate complying with FATCA under the Agreement in the UK, in the form set out in the FATCA regulations in a number of jurisdictions, and under other anticipated intergovernmental agreements in jurisdictions which have them. We applaud HM Government for being able to add Article 7 to the Agreement, not just because this ensures that UK financial institutions should benefit from any concessions negotiated by governments of other jurisdictions but perhaps more importantly because it will set a precedent which should hopefully lead to an equivalent clause in all other IGAs. This gives a chance of there only being one form of IGA in practice, representing the best that any IGA jurisdiction is able to negotiate.
• Given the wide range of different institutions potentially affected by FATCA, there is a difficult tension between on the one hand allowing entities to report information in the same format in which they already hold that information (without having to carry out difficult tax analysis) and on the other hand
ensuring the information reporting complies with data protection law and the entity’s own terms of business. It is conceivable that specific FATCA-related amendments to data protection law, perhaps at a European level, may be the only way to fully resolve the data protection issue.
• Timing is important, as is flexibility, and the implementing legislation should be designed so as to be able to adapt to any relaxations in the FATCA regime or the IGA regime (which may be brought about under Article 7 as a result of other nations which have taken longer to negotiate their IGAs achieving concessions from the US government).
• Whilst technically outside the scope of the consultation, we believe we may have identified a flaw in the drafting of the IGA itself. The FATCA regulations and guidance in the US appear to include investment entities which invest on their own account, and do not have “customers” as such. The IGA definition of “Investment Entity” is limited to entities which conduct certain operations for or on behalf of a customer. Therefore it appears that entities such as securitisation companies and holding companies of groups which include a bank subsidiary could be FFI’s for FATCA purposes but not under the IGA. This would seem an odd result and we would welcome clarification from HM Government and the IRS on this issue.
Copies of all of the submissions are on the CLLS website.
Bradley Phillips, Chairman, Herbert Smith Freehills LLP
City Solicitor • Issue 80 • 5
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