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Isle Of Man Exploring US FATCA Agreement

by Jason Gorringe,, London

15 August 2012

The Isle of Man may too seek to agree a model intergovernmental agreement with the United States, similar to that agreed by five European Union member states, to mitigate the burden on financial institutions of compliance with the United States' Foreign Account Tax Compliance Act (FATCA).

FATCA was enacted by Congress in March 2010 and is intended to ensure that the US tax authorities obtain information on financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest, with foreign financial institutions (FFIs). Failure by an FFI to disclose information would result in a requirement to withhold 30% tax on US-source income.

While FFIs will be able to register through an online system that will become available by January 1, 2013, and institutions with US clients will be required to report basic account details for 2013 and 2014 by January 1, 2015, it is currently envisaged that the income of those clients will not need to be reported until January 1, 2016, with respect to calendar year 2015.

To address the concerns of FFIs about the increase costs of compliance, and penalties as a result of non-compliance, five European Union member states, France, Germany, Italy, Spain and the United Kingdom, agreed with the United States a framework to allow FFIs to report the necessary information to their respective governments rather than directly to the US tax authority, the Internal Revenue Service; the model intergovernmental agreement. In addition, the governments agreed to a reciprocal version of the model intergovernmental agreement, which would require US FFIs to also disclose, on a bilateral basis, information in relation to financial accounts held by residents in US FFIs to co-signatory nations' authorities. In developing the model agreement it was envisaged that, under the leadership of the Organisation for Economic Cooperation and Development, the model agreement could be adapted to support other nations in also concluding similar agreements with the United States, as a further step to improving global tax transparency.

In a new policy response document, the Isle of Man government noted that both Japan and Switzerland have formally announced that they too intend to pursue an intergovernmental approach with US authorities to facilitate the implementation of the FATCA. The model envisaged in relation to both Japan and Switzerland is different from the model envisaged by the five European countries.

The Isle of Man government said that it is considering negotiating a similar agreement with US authorities, 'to reduce compliance costs in the Isle of Man wherever possible'. A high-level FATCA working party, comprising both of high level government figures and private sector bodies, has been assembled to explore this avenue.

The island's Treasury Minister, Eddie Teare commented: “FATCA represents a step change in global tax co-operation. It is vital that a robust and efficient framework is in place that will allow Isle of Man businesses to comply with FATCA. The model intergovernmental agreement published two weeks ago and the alternatives are being studied closely and the views of the local businesses potentially affected are being sought. I remain committed to ensuring that the Isle of Man is well placed to meet the challenges posed by FATCA and to ensuring that we provide the best possible environment for business in the Isle of Man.”

TAGS: Isle of Man | environment | compliance | tax | investment | business | offshore confidentiality | tax compliance | tax avoidance | interest | banking | international financial centres (IFC) | United Kingdom | tax authority | offshore | offshore banking | France | Germany | Italy | Spain | Switzerland | United States | penalties | Japan

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