Caymans Islands to no longer be a fabled tax haven
By Denny Gulino From mni news
WASHINGTON (MNI) – With the U.S. signing Friday of a mutual agreement to turn over the names of account holders to each other’s tax authorities, the Cayman Islands’ long history as one of the favorite – and most notorious – shelters of unreported income in the Western Hemisphere came to an end.
The Treasury Department announced the U.S. signing of the agreement, in London, that binds the Caymans under the U.S. Foreign Account Tax Compliance Act. The 2010 law provides templates by which offshore havens can restructure their information sharing policies. The Caymans government did its signing earlier this month.
The Caymans is a British territory and the new pact is modeled after one the UK agreed in May to sign. Similar agreements with the Isle of Man, Jersey and the Guernsey Islands were made final in October.
The latest agreement was settled in August, by which time the U.S. individual tax haven beneficiaries were assumed to have long since prepared to pull their accounts or were in the process of settling with the IRS.
Corporations, unlike individuals, will continue to enjoy the significant tax loopholes which are enshrined in U.S. tax law but which are threatened by some tax reform proposals in the early stage of development on Capitol Hill.
The U.S. program’s biggest prize so far has been Switzerland’s signing to an even more rigorous reporting regime than in the Caymans, forcing banks in that country to turn over data directly to the IRS.
In the Caymans, its Tax Information Authority will do the information gathering and “will in turn relay that information to the IRS,” the Treasury announcement said.
The arrangement, which identifies U.S. accounts holding more than $50,000, takes effect in the middle of next year and requires the exchange of 2014 and 2015 information to happen by late 2016.
Switzerland’s defense of its secret accounts began to crumble in 2009 after the U.S. extracted $780 million from the wealth management unit of country’s biggest bank, UBS, having earlier indicted a member of the executive board. Switzerland began handing over names of U.S. account holders and the arrangement was institutionalized in 2010.
UBS’ bank secrecy settlement was later to be eclipsed by the $1.5 billion paid last year to settle a U.S. CFTC complaint the bank was helping manipulate LIBOR rates.
The Cayman Island’s government also signed a new Tax Information Exchange Agreement with Treasury, replacing one that went into effect in 2001.
“By working together to detect, deter and discourage offshore tax abuses through increased transparency and enhanced reporting, we can help building a stronger, more stable and accountable global financial system,” the U.S. embassy’s minister for economic affairs said in London after signing the agreement on behalf of the U.S.
“We look forward to collaborating with the government of the Cayman Islands to further these objectives,” U.S. minister July Nutter said.
Costa Rica also this week signed an agreement to trade tax information. For Costa Rica citizens, it has been the U.S. that has often served as a tax haven. Both signings were the first extensions of the FATCA regime to the Caribbean and Central America.
One particular U.S. taxpayer had found his Cayman Island connections disclosed at an awkward time, during his campaign to be president of the United States. When Mitt Romney made public his 2010 return and an estimated 2011 income tax return, they showed substantial use of the Caymans, Bermuda and Switzerland as destinations that appeared to help lower his tax rate on $13 million in income to 14.1%.
The Romney campaign denied the use of offshore locations in itself lowered his tax payments. “There was no tax savings at all,” Romney told a Fox Network interviewer in August of last year. A Washington Post Fact Checker story subsequently found enough ambiguity in the situation that it awarded Romney only one “Pinocchio” of the four it has available in assessing the truthfulness of assertions.
Estimates of U.S. tax revenue lost through offshore tax avoidance schemes of individuals vary widely but the most credible point to tens if not hundreds of billions. Tax avoidance in total, by taxpayers and criminal organizations of every nationality, is estimated to be as much as $1.6 trillion a year, the kind of sum that has prompted the recent wave of international cooperation to crack down on tax havens.
On Thursday, Cayman Finance, the organization that represents the islands’ financial services firms, said the OECD now ranks the government’s compliance with international disclosure standards on a par with Germany, the UK and the U.S. Cayman Finance has taken the position that the territory’s future as a financial center will be best advanced if international standards establish a level playing field.
So far 12 agreements under the U.S. FATCA templates have been signed and another 16 agreements “in substance” have been reached, the Treasury Department said.
However many more territories and countries still provide domiciles for accounts kept secret from tax authorities, some little more than rocky outcroppings isolated by thousands of miles of ocean.
Studies by McKinsey & Co. and the Tax Justice Network supported by a Belgian charity estimate that wealthy individuals have up to $32 trillion socked away out of sight of tax authorities worldwide with the help of a long-established network of wealth advisory firms specializing in helping clients dodge the tax collector.
Up until its signing, the Caymans was listed by the Justice Network as the fourth biggest destination for secret accounts, with $1.2 trillion sheltered from disclosure. The first three were Switzerland – with an estimated 1.8 trillion sheltered – Luxembourg and Hong Kong. Singapore was No. 5 and No. 6, also with an estimated $1.2 trillion sheltered from disclosure, was the United States.
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Cayman Islands agrees to report US citizens’ offshore assets under controversial law
From RT
PHOTO: Reuters / Kim Hong-Ji
The Cayman Islands has signed an agreement with the United States to combat offshore tax evasion pursuant to a controversial 2010 law that has caused some notable US expatriates to revoke their US citizenship.
The US Department of the Treasury announced Friday the US has signed an intergovernmental agreement with the Cayman Islands to enforce the Foreign Account Tax Compliance Act (FATCA) in what it bills as an effort to promote transparency.
In the Cayman Islands – one of the world’s largest offshore financial centers – foreign financial institutions (FFIs) will be required to share tax information about US account holders with the IRS via the Cayman Islands Tax Information Authority.
Passed by Congress in 2010, FATCA seeks to snuff out Americans avoiding US taxes overseas by requiring FFIs to report yearly to the Internal Revenue Service (IRS) on US citizens holding over $50,000 at a year’s end. Should FFIs refuse to share the information, US financial institutions are ordered to withhold a portion of payments made to the FFIs. The FFIs can make agreements directly with the IRS or follow one of two kinds of agreements their host country signs. The Caymans’ agreement is a Model 1B agreement; a different agreement signed Tuesday with Costa Rica is a Model 1A.
“By working together to detect, deter, and discourage offshore tax abuses through increased transparency and enhanced reporting, we can help build a stronger, more stable, and accountable global financial system. We look forward to collaborating with the Government of the Cayman Islands to further these objectives,” said Julie Nutter, Minister-Counselor for Economic Affairs at the US Embassy in London, in a statement. Nutter signed the agreement for the US on Friday.
The Cayman Islands signed a similar agreement with the United Kingdom early this month.
“These agreements underscore growing international cooperation in the effort to end tax evasion everywhere,” said Deputy Assistant Secretary for International Tax Affairs Robert B. Stack.
Yet FATCA requirements are also putting a strain on American expatriates in dual citizenship households that don’t have lavish funds hidden abroad, or that include a non-American spouse or partner who finds the IRS prying into their financial data as invasive, news service McClatchy reported Friday.
“My husband cannot understand why Americans are so offended by having their personal emails and phone calls monitored by the (National Security Agency) yet are very comfortable requiring a Canadian to hand over their bank account data, which is far more sensitive,” said Ruth Anne Freeborn, an expat who has lived in Ontario for over 30 years. She decided to forego her citizenship – she was born in Oklahoma – in September.
Freeborn’s husband, with a yearly salary of $51,000, is the family’s sole income earner. He was opposed to sharing his financial data with the US following the passage of FATCA.
“My decision was either to protect my Canadian spouse and child from this overreach or I could relinquish my US citizenship,” she said. “It was with great sorrow I felt I had to relinquish, but there was no other choice for me and many like me.”
The amount of citizenship renunciations has gone up from 742 in 2009 to over 1,854 thus far in 2013, according to the State Department. Some estimate the number is much higher based on foreign media reports.
In addition, expats say FATCA is causing many overseas banks and financial institutions to “close out longstanding accounts of American clients, refuse to open new ones, and deny loans and mortgages to expats rather than face a US penalty if they don’t comply with the tax law,” McClatchy reported.
Wealthier expats may be hiding money overseas, yet most expats like Freeborn are at the mercy of the law.
Entertainer Tina Turner – who has lived in Switzerland for over 20 years and is married to a Swiss citizen – relinquished her US citizenship this month at the US Embassy in Bern. And Facebook co-founder Eduardo Saverin forewent his citizenship last year and now lives in Singapore. The move saved him $67 million in US taxes, financial experts estimate.
Meanwhile, proposals in Congress to revisit the law have stalled.
“FATCA is a textbook example of a bad law that doesn’t achieve its stated purpose but does manage to unleash a host of unanticipated destructive consequences,” said Sen. Rand Paul (R-KY), when he introduced his bill to repeal FATCA this year. “Tax evasion is a problem that should be addressed, but not in an egregious way.”
The US agreed Tuesday to send Costa Rica tax information to its government regarding Costa Rican citizens with accounts in the US.
The US has signed 12 FATCA intergovernmental agreements since the law’s passage. Treasury says its has reached 16 agreements “in substance” and is pursuing many others.
For more on this story go to:
http://rt.com/business/cayman-tax-report-agreement-505/
To download the complete “Agreement between the Government of the Cayman Islands and the Government of the United States of America to Improve International Tax Compliance and to Implement FATCA” go to: http://www.treasury.gov/resource-center/tax-policy/treaties/Documents/FINAL%20US%20-%20Cayman%20Islands%20-%20Cayman%20alternat.pdf
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The Cayman Islands Agrees to Share Tax Data with the Five Eyes Countries
Posted on November 29, 2013 by emptywheel
Apparently, the people at Treasury don’t need to take advantage of the Black Friday sales. Instead, they’re at work and announcing that the Cayman Islands (and Costa Rica) will share information on US taxpayers with the IRS. The move comes after the Brits rolled out a similar agreement earlier this month.
I assume we’ll see other advanced countries demand similar agreements. But for the moment, just the NSA and GCHQ’s home countries will be able to learn which of their citizens are stashing money in one of the world’s most important tax havens (and one that has been important to Anglo-American financial dominance).
There are two submarine cables serving the Cayman Islands. One — Maya 1 — carries telecom traffic to Hollywood, FL. It is owned, in part, by NSA spy partners AT&T and Verizon. The other carries traffic to Jamaica. Another of the cables that serves Jamaica lands in Boca Raton. A third carries traffic to British Virgin Islands. From BVI, cables carry traffic directly to several other landing spots in the US, as well as — by way of Bermuda — Canada.
Earlier this year, someone leaked massive amounts of data on BVI’s tax shelter clients and habits (though curiously, no US persons were identified among the most prominent culprits). As far as I know, no one has ever discovered how that data got leaked, and there seems little concern from the powers that be about this leaker who, after all, was as audacious as Chelsea Manning or Edward Snowden.
Now, I’m not saying that the US and UK were already stealing Cayman Islands’ data. I’m only saying that doing so would be perfectly within the known practices of America and Britain’s spy agencies.
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Cayman Islands and Costa Rica agree to share bank account details with US
Reuters in Washington theguardian.com
The alleged tax havens have signed agreements with the United States to tell the IRS about funds held offshore by Americans
The United States has signed agreements with the Cayman Islands and Costa Rica to help those countries’ banks comply with an anti-tax evasion law starting next year, the Treasury Department said on Friday.
The deals are part of the US effort to enforce the Foreign Account Tax Compliance Act (FATCA), which was enacted in 2010 and is set to take effect in July 2014. FATCA requires foreign financial institutions to tell the US Internal Revenue Service about Americans’ offshore accounts worth more than $50,000. It was enacted after a Swiss banking scandal showed that 17,000 US taxpayers had hidden substantial fortunes overseas. On Thursday a former UBS banker, Raoul Weil, agreed to be extradited to the US to face charges arising from that scandal.
With these two deals, both signed this week, the Treasury has now finished 12 FATCA “intergovernmental agreements” (IGAs), which help countries’ financial institutions comply with the law.
The FATCA agreement with the Cayman Islands was initially agreed to in August. The island territory of 53,000 people has no income tax and is frequently labelled as a tax haven by critics. It is one of the world’s most popular destinations for investment funds to organise for tax purposes.
Costa Rica was one of three Central American countries the Organisation for Economic Development and Co-operation (OECD) has tagged as a tax haven. Panama and Belize were the other two. Significantly, the Costa Rica deal is reciprocal, meaning the Costa Rican government can get tax information about its citizens with assets in the United States.
The trading of financial information, though not part of the Cayman Islands deal but included in many of the other 11 FATCA agreements, has rankled US banks. In April, the Texas Bankers Association and the Florida Bankers Association, both industry groups, filed a lawsuit attempting to block a Treasury Department rule that would allow the IRS to send certain bank account information to foreign governments.
The case, filed in the US district court for the District of Columbia, is awaiting a judge’s ruling on whether the bankers’ associations have standing.
PHOTO: The Cayman Islands will turn over details of Americans’ offshore accounts to US tax authorities. Photograph: David Doubilet/National Geographic/Getty
Images
For more on this story go to:
http://www.theguardian.com/world/2013/nov/29/cayman-costa-rica-us-tax
