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Cayman Islands Monitoring FATCA Developments

by Amanda Banks,, London

25 October 2012

The Cayman Islands government has released an update on whether the territory will negotiate a government-to-government reporting arrangement with the United States to ease the compliance burden on local financial institutions of complying with the requirements of the US's Foreign Account Tax Compliance Act (FATCA).

FATCA, enacted by Congress in March 2010, will require foreign financial institutions (FFIs) to disclose information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest. Failure by an FFI to disclose information would result in a requirement to withhold 30% tax on US-source income. Presently, it is anticipated that FFIs will only need to begin reporting income received by these clients by January 1, 2016, in respect of the calendar year 2015. Despite the lengthy transitional period envisaged, FFIs have warned of the substantial compliance burden attached to the reporting requirements.

Earlier, the United States and France, Germany, Italy, Spain and the United Kingdom collaborated on the negotiation of a landmark inter-governmental agreement, designed to allow relevant information to be transmitted to US authorities via a centralized authority in each nation. Negotiations are advanced between the United States Treasury, Japan and Switzerland, towards another, adapted agreement. The first inter-governmental agreement was drawn up to establish a benchmark pact, to allow other nations to negotiate broadly similar arrangements with the United States.

The island's Premier, McKeeva Bush, said: “The government is keeping track of the discussions surrounding FATCA, and evaluating both information and dialogue in order to make the best choice for our jurisdiction regarding a reporting arrangement,” he said. “We will be in a position to decide on the best way forward once the Model 2 Intergovernmental Agreement [involving Switzerland and Japan] is published and we have been able to fully evaluate all the options."

“As government continues this process, it is encouraging that FFIs in the Cayman Islands are moving ahead with their particular preparations, in accordance with US requirements."

TAGS: compliance | tax | investment | offshore confidentiality | interest | law | banking | international financial centres (IFC) | Cayman Islands | offshore | United States | mutual assistance agreement

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