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Jamaica's Minister for Finance and Planning, Dr Peter Phillips has warned Caribbean financial institutions to prepare for the implementation of the United States' Foreign Account Tax Compliance Act (FATCA), at a recent conference dedicated to the subject held in Kingston.
At a recent conference dedicated to the subject held in Kingston, Phillips told attendees: “We are still at an early stage in the implementation of FATCA. My impression is that the final regulatory arrangements are still not clear, even in the mind of the US authorities, but nevertheless, we understand the asymmetries of power and influence that exist, and I think it is important that we be prepared here.”
FATCA, which was enacted in 2010 by the US government as part of the Hiring Incentives to Restore Employment (HIRE) Act, is an important development in the US’ efforts to combat tax evasion by US taxpayers with investments in offshore accounts. The Act is of particular significance as it places an obligation on foreign or non-US financial institutions to report to the US Internal Revenue Service (IRS) information about financial accounts held by US taxpayers, including entities in which the US taxpayer holds a significant ownership interest.
A participating Foreign Financial Institution (FFI) will have to enter into an agreement with the IRS to provide the name, address and taxpayer identification number (TIN) of each account holder who is a specified US person; and, in the case of any account holder which is a US-owned foreign entity, the name, address, and TIN of each substantial US owner of such entity. The account number is also required to be provided, together with the account balance or value, and the gross receipts and gross withdrawals or payments from the account.
Under the timeline provided by the IRS and US Treasury, an FFI must enter an agreement with the IRS by June 30, 2013, to ensure that it will be identified as a participating FFI in sufficient time to allow withholding agents to refrain from withholding beginning on January 1, 2014.
Phillips said for Jamaica's part, the government would be putting in place several measures shortly to help institutions prepare for FATCA’s implementation. This will include the Bank of Jamaica carrying out a risk assessment on its licensees to determine the state of readiness of these entities and their systems.
The Minister welcomed talks ongoing between US authorities with the United Kingdom, France, Germany, Italy and Spain, to ease the compliance burden attached to the FATCA, potentially through a centralized body in each nation for dealing with the information exchange requirements under the Act. A total of 40 additional nations are thought to be interested in joining such an agreement to ease the substantial financial burden the Act is to have on financial institutions, including those without US accounts. “If this proves possible, financial entities will be relieved of some liabilities particularly if reporting is done through the local central authorities who would be empowered to receive this information,” Phillips said.
“Even as we make our efforts, whether on the basis of bilateral interventions with the United States, or in partnership with other Caribbean countries, we will be strenuously seeking to ensure that there is no unfair advantage faced by Jamaican financial institutions," Phillips added. "Equally, the message must be that we are facing an increasingly stringent global regime of tax compliance and we need to put our house in order in this regard,” he emphasized.
He said non-compliance with the regulations may not be an option: “If we choose simply to ignore it, it will render the financial institution ultimately liable to the withholding on all income, including gross proceeds of investment transactions sourced to a US asset at a 30% rate. So essentially, you will be foregoing 30% of all your income flows."
Warning regional financial institutions to begin considering the impact of FATCA on their business, Phillips said: “There are several important risks that arise as a consequence of this for local financial institutions. There are the legal risks relating to the unauthorized disclosure of customer information; legal risks relating to withholding and or closing customers’ accounts; there are the operational costs and risks relating to retrospective and additional due diligence and data transmission measures; and there are the risks related to the withholding on a foreign financial institution’s US income payments and possible closure of that foreign financial institution’s US accounts.”
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