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The Department of the Treasury has announced that the United States has signed intergovernmental agreements (IGAs) with the Cayman Islands and Costa Rica to implement the Foreign Account Tax Compliance Act (FATCA).
FATCA, enacted by Congress in 2010, is intended to ensure that the Internal Revenue Service (IRS) obtains information on accounts held abroad at foreign financial institutions (FFIs) by US persons. Failure by an FFI to disclose information on their US clients, including account ownership, balances and amounts moving in and out of the accounts, will result in a requirement on US financial institutions to withhold 30 percent tax on US-source income.
To address situations where foreign law would prevent an FFI from of entering into an agreement directly with the IRS, Treasury has developed model IGAs. Signed on November 29, the IGA between the US and Cayman is the Model 1B version, meaning that FFIs in Cayman will be required to report tax information about US account holders directly to the Cayman Islands Tax Information Authority, which is the sole channel in Cayman for the provision of tax-related information to other governments. The Cayman Islands Tax Information Authority will in turn relay that information to the IRS.
Additionally, the US and Cayman also signed a new tax information exchange agreement, to take the place of the original agreement signed in 2001.
The signing of the agreements was held in London, immediately after Cayman officials participated in the United Kingdom's Joint Ministerial Council of Overseas Territories. Welcoming the two new agreements, Cayman's Minister of Financial Services, Wayne Panton, pointed out that Cayman is the first Overseas Territory to sign a FATCA agreement with the US.
"Our participation in globally accepted transparency and tax information exchange initiatives speaks volumes of our financial services integrity," he said, "and that leads to the confidence and trust that investors continue to have in us."
The Costa Rica IGA was signed on November 26, and is a Model 1A agreement, meaning that the US will also provide tax information to the Costa Rican government regarding Costa Rican individuals with accounts in the US.
Ayales Edgar, its Minister of Finance, signing on behalf of Costa Rica, said: "The signing of this agreement represents a breakthrough in international taxation and a major commitment by the country in fiscal transparency and automatic exchange of information relevant to tax and financial purposes. Moreover, our country becomes the second in Latin America, after Mexico, entering into this type of agreement with the US."
The US Treasury confirmed that, in addition to the 12 FATCA IGAs that have been signed to date, it has also reached 16 agreements in substance and is engaged in related conversations with many more jurisdictions.
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