Two stories that explain FACTA and why the Cayman Islands is worried

The push for global tax transparency – the UK’s son of FATCA

From pwc

If press rumours are to be believed, the Autumn Statement may see the introduction of legislation under which UK Crown Dependency and Overseas Territories tax havens hand over data to HM Revenue & Customs (HMRC). Countries likely to be affected, and where we expect to see a high level of new tax disclosures emerging, include Jersey, Guernsey, Isle of Man, the Cayman Islands, Gibraltar, Bermuda and the British Virgin Islands. But what’s brought about the need for such a focused crackdown on the use of tax havens? And what is the impact of this legislation likely to be?

Understanding the need for greater tax transparency

In April 2009, the Office for Economic Cooperation and Development (OECD) and the G20 called for significant progress to be made towards financial transparency, principally in countries identified as ‘tax havens.’ They identified 38 countries which had committed to, but hadn’t yet substantially implemented, the internationally agreed tax standard (dubbed the ‘grey list’), and four countries that hadn’t demonstrated any commitment to the tax standard (the ‘black list’). By signing 12 double tax agreements countries were able to get themselves off the grey list. By 2012, no countries remained on the black list and only three remained on the grey list.  On the face of it substantial progress to create global tax transparency had been achieved.

In reality however, the OECD was criticised for removing countries from the grey list which still significantly obstruct progress towards fiscal transparency, due to the leniency of the requirements for the ‘white list’. Put bluntly, tax havens simply tried to avoid tax agreements with developed countries.

Making use of the Liechtenstein Disclosure Facility

Progress towards tax transparency came instead from an unexpected source. In recent years the increased importance of whistleblowers has been a major factor in the development of banking transparency.  Several banks have seen data handed over to tax authorities in relation to Swiss, Jersey and Liechtenstein bank accounts. As a direct consequence, Liechtenstein announced a programme to make sure all UK resident business would be tax compliant by 2015 and negotiated the Liechtenstein Disclosure Facility (LDF) with the UK. This allows anyone with undeclared offshore assets in late 2009 to make a voluntary disclosure to HMRC on preferential terms. The LDF has proved to be very successful for the UK Government, which extended it to March 2016 and announced that it expected to collect £5bn through this mechanism.

Adopting tax transparency policies

Many banks, suffering a loss of reputation and at risk of legal action from governments such as the United States (US), are adopting tax transparency policies and are systematically getting rid of non-tax compliant customers. Nowhere is this transition more obvious than in Switzerland where the new UK/Swiss Tax Agreement (due to come into force on 1 January 2013) has accelerated this change and led to a significant number of UK residents making tax disclosures.

The Foreign Account Tax Compliance Act (FATCA)

In a game-changing move, the US announced the Foreign Account Tax Compliance Act (FATCA) in 2010. This onerous legislation requires banks to report details of US citizens holding accounts with them. One thing is clear, the US may stand behind many tax havens, but it won’t tolerate its own citizens using them.

As part of the mechanism for the operation of FATCA, countries such as the UK have recently signed up to collect data for the US. The UK’s Crown Dependency and Overseas Territories are in the process of negotiating a similar agreement with the US which is expected to by signed by the end of the year. There’s been debte suggesting that the UK is putting pressure on the US not to sign this agreement unless the Crown Dependencies agree to our information exchange with the UK.

This is an important development and one which allows the UK to insist that its own tax havens hand over UK resident’s bank information, as well as information on trusts and funds. Like the US, the UK is content to allow the existence of its tax haven dependencies but it won’t tolerate their use by its own residents.

The impact of a UK FATCA

If the Chancellor does announce a FATCA-style piece of legislation, this will have a significant impact for anyone holding bank accounts in territories such as  Jersey, Guernsey and the Isle of Man etc. Introducing a further investment in new resource to counteract tax evasion, a Ministerial Statement dated 3 December 2012 announced that “A groundbreaking agreement with the US – the UK-US Agreement to Improve International Tax Compliance and to implement FATCA – will significantly increase the amount of information automatically exchanged between the two countries. The agreement sets a new standard in international tax transparency and will further enhance HMRC’s ability to tackle offshore evasion. The Government will look to conclude similar agreements with other jurisdictions.”

For more on this story go to:

http://pwc.blogs.com/north/2012/12/the-push-for-global-tax-transparency-the-uks-son-of-fatca-.html

FATCA regulations finally released

PIC 18 Jan 2013

Following weeks of speculation, the US Treasury and Internal Revenue Service on Thursday [Jan 17 2013] evening finally issued the final regulations on how FATCA will be implemented.

The report thus explains how non US financial institutions will need to make the final preparations for collecting data on their American account holders.

The Foreign Account Tax Compliance Act is set to start in January 2014 and is aimed at cracking down on American taxpayers who make use of foreign accounts to avoid their US tax liabilities.

UK financial institutions

UK financial institutions have signed into an intergovernmental agreement between the US and Britain, whereby they will forward the data of their American clients to UK authorities, who in turn will forward it to the US.

A number of other countries have also agreed similar agreements, whilst others are said to be in discussions.

Speak to a deVere Financial Adviser today to learn more about the FATCA legislation and how it will affect you.

Isle of Man establishing UK FATCA deal

In a statement to Tynwald, Chief Minister of the Isle of Man Allan Bell has announced how the government is discussing a tax deal with the UK to implement a FATCA like agreement.

This ‘ground-breaking’ deal will resemble the US’s FATCA agreement which entails countries’ institutions to issue personal information about the personal accounts of the citizens to gather information regarding their income and paid taxes.

Mr. Bell explained that contrary to those who believe the Isle of Man would gain ‘little from this’, ‘a failure to meet the standards of the best regulated jurisdictions in the world, and help to shape that framework, would damage the island’s economic prospects in the medium to long term’.

Mr. Bell also expressed his belief that FATCA may supersede the EU Savings Directive since, he said, ‘the US FATCA is a game changer in relation to transparency and the automatic exchange of information agenda’.

Moreover, Mr. Bell remarked that the Isle of Man had two options – either take part in changing its legislation or ‘sit back’ and let others change its future. The latter however is not an option he is considering since running ‘the risk of forever being labelled as a tax haven’ would mean the jurisdiction being black listed and missing out on opportunities.

The agreement would be slightly different than the original FATCA – avoiding breaching protection laws, the FATCA like agreement will involve financial institutions reporting under an IGA, the latter of which will then report to the local tax authority.

In conclusion, Mr. Bell said: ‘I believe the Isle of Man must be viewed by the international community as a highly competitive jurisdiction, with a good tax treaty network, but with tax and regulatory regimes which meet international standards and are not harmful to other countries’ economic or fiscal interests’.

Possible FATCA-like legislation for British overseas territories

It seems the UK government is taking some points from the US government and implementing a FATCA version to Britain’s overseas territories such as Crown Dependencies, Gibraltar and the Cayman Islands to obtain date on the accounts held by British taxpayers.

International Adviser reports how the ‘son of FATCA’ plans emerged in a report by the International Tax Review (ITR) which stated that it saw a leaked draft copy of a government document delineating how the plan would work.

The draft states how this scheme would ‘require the automatic exchange of information for each reportable account of each reporting financial institution. That would include full details of all beneficial owners of the account, including those whose identities might otherwise be hidden by trusts or companies’.

This alleged report contradicts the UK government’s stance on the US FATCA version since the former had ‘publicly rejected the need for a UK version of FATCA’ however, ‘in private…the Government has already drafted [this] legislation, which it will impose on its Crown Dependencies and Overseas Territories… [including] some of the world’s most notorious tax havens, such as the Cayman Islands, the Channel Islands and the Isle of Man’.

FATCA experts are not surprised by this new report however, as they expect a number of European countries to ‘bring in their own domestic, FATCA-like regimes’ to boost their tax intake and sustain their weak economies.

The reported ‘son of FATCA’ scheme is set to come into effect January 1, 2014.

Second FATCA model issued by US

The FATCA Model 2 template agreement was ‘quietly unveiled’ by the US treasury to be used in certain jurisdictions where the first FATCA agreement would not work.

The Model 2 template, which is explained on the US Treasury website in a 31-page document, is to be used when a FATCA partner ‘may not be able to comply with certain aspects’ of the first FATCA agreement, because of ‘domestic legal impediments’, thus it has to report directly to the US IRS instead of going to the government of the jurisdiction under which it operates – as the first FATCA agreement demands.

International Adviser reports how this alternative has already been agreed to ‘in principle’ by Switzerland and Japan. The American Citizens Abroad (ACA) was pleased by this new alternative since it is ‘clear indication that ACA advocacy, along with that of other overseas organisations, is having an effect’.

The ACA commented how ‘this new version of the Intergovernmental Agreement contains provisions that require a foreign financial institution that wishes to take advantage of certain favourable provisions to avoid policies or practices that discriminate against opening or maintaining accounts for Americans residing in the foreign country covered by the IGA’.

FATCA establishing deals in 50 countries

The implementation of FATCA may have been postponed until January 2014 but this delay has only allowed the US to discuss deals with more than 50 jurisdictions in a ‘controversial’ move the IRS is ‘digging in with gusto’.

A press release from the US department of Treasury related how the US is ‘engaging with more than 50 jurisdictions’. At the moment, Forbes reports, the US is finalising agreements with France, Germany, Italy, Spain, Japan, Switzerland, Canada, Denmark, Finland, Guernsey, Ireland, Isle of Man, Jersey, Mexico, the Netherlands, and Norway.

The country also has an ‘active dialogue’ with Argentina, Australia, Belgium, the Cayman Islands, Cyprus, Estonia, Hungary, Israel, Korea, Liechtenstein, Malaysia, Malta, New Zealand, the Slovak Republic, Singapore, and Sweden.

Moreover, the US is delineating ‘viable options’ in Bermuda, Brazil, the British Virgin Islands, Chile, the Czech Republic, Gibraltar, India, Lebanon, Luxembourg, Romania, Russia, Seychelles, Saint Maarten, Slovenia, and South Africa.

Treasury Assistant Secretary for Tax Policy Mark Mazur has stated that ‘global cooperation is critical to implementing FATCA in a way that is targeted and efficient’ while adding that, ‘by working cooperatively with foreign governments and financial institutions, we are intensifying our ability to combat tax evasion while minimising burdens on financial institutions’.

The UK’s IGA – the intergovernmental agreement between the US and the UK – has already been established but with so many deals yet to be set, the IRS still has to ‘clarify the small print on FATCA’. One thing is clear however, ‘whether you agree with it or not, the FATCA freight train is gaining momentum. You may want to get out of the way’.

Speak to a deVere Financial Adviser today to learn more about the FATCA legislation and how it will affect you.

FATCA is major issue for US citizens

On the day when America chooses its President, many are fearing FATCA – one of the Obama administration’s most controversial legislative proposals, which is once again generating lots of controversy.

Amongst the stories of criticism against FATCA, the founder of the web-based American expat discussion platform the Isaac Brock Society, Peter Dunn, publically stated on iexpats.com today that FATCA has effectively exiled him from his homeland.

Despite him renouncing his US citizenship last year, Dunn fears that he could be charged with failure to file FBARs that the US required while he was still an American citizen. “I am therefore now wondering if I will be arrested if I return to the United States”, he said.

FBARs are treasury forms which need to be filed annually by the individual to report their financial earnings and transactions.

Indeed, Dunn feels that FATCA pushes overseas financial organisations into acting as defacto snooping agents for the IRS – as it requires foreign financial institutions to declare the financial transactions of their US clients to the IRS.

In the article, Dunn also warned that not only does FATCA adversely affect the 6 million plus American expats due to its complex and costly reporting procedures, it could also jeopardise the fragile US economy and breaches several major international agreements.

FATCA postponed

The US government has postponed the start date of FATCA, the Foreign Account Tax Compliance Act enacted in March 2010 to stop American citizens from evading US tax by using foreign subsidiaries.

The Internal Revenue Service said that the tax legislation will come into effect from 1st January 2014 in order to give businesses more time to put procedures in place to meet the requirements and comply with the rules of FATCA.

The new 2014 deadline therefore means that businesses have an additional year to prepare. The IRS will also now have until 1 January 2017 to begin withholding US tax from clients’ investment gains, an extra two years from the original deadline.

However, FATCA remains a major worry and a very costly exercise for foreign financial institutions, which have yet to receive the final rules on the legislation.

FATCA – the real issue that future US President should discuss

The FATCA D-day is quickly looming – January 1st 2013 – and as such, Americans were disappointed that the third and final debate of the US Presidential campaign on Monday failed to address the issue that is forcing many to give up their status as citizens of the United States.

The Presidential face-off between Democratic candidate Barack Obama and Republican Mitt Romney instead focused almost exclusively on the growing unrest in the Middle East – ignoring the important and troubling FATCA trend that is seeing Americans renounce their citizenship in favour of countries with a less burdensome tax code.

Notably, a record 1,780 gave up their US passport last year and analysts predict that FATCA will boost the number of renounced US citizenships exponentially, especially amongst American expats.

The FATCA legislation requires all citizens to report their worldwide assets and earnings to the IRS, regardless of where they live and how long they have been living there. Foreign Financial Institutions will also be required to disclose such information of any American clients they may have.

The Blaze quoted deVere Group CEO Nigel Green, who expressed his concerns over the FATCA legislation that has ‘serious, unintended negative consequences’. In effect, the tax law will force banks and wealth managers to act as de facto agents and would ultimately see the US losing a record number of businessmen and entrepreneurs. Green adds that FATCA may be ‘the straw that breaks the camel’s back’ as America is the only developed nation in the world that taxes its citizens on income they earn abroad.

The news site concludes that the reasoning behind ignoring FATCA during the Presidential debate is that as foreign countries stand to benefit from being on the receiving end of a tax-related exodus, this could boost foreign trade for the US – a policy that Mitt Romney spoke at length about.

Nigel Green, who leads the world’s largest financial consultancy that takes care of expatriates all over the globe, said that as the sense of anxiety is building amongst Americans living abroad after being stranded by banks and wealth management firms since the FATCA process is being perceived as too costly, his company vows to remain committed to its clients and offer efficient solutions that are still in-line with US tax law.

Nigel Green also wrote about FATCA on his blog where readers are encouraged to leave a comment.

-Related Articles-

http://www.financial-planning.com/news/more-americans-may-renounce-citizenship-due-to-tax-change-2681555-1.html

Guernsey, Jersey and Isle of Man to sign FATCA agreements with US

From deVere

International Adviser has reported that the governments of the crown dependencies – Guernsey, Jersey and the Isle of Man – are planning on negotiating partnership agreements with the United States in order to implement FATCA.

FATCA, the Foreign Account Tax Compliance Act is legislation enacted in March 2010 by the US Government and is expected to apply from 1 January 2013. The purpose of FATCA is to stop American investors from evading US tax by using foreign subsidiaries to invest back in the US. FATCA imposes a 30% withholding tax on foreign entities that refuse to disclose the identities of their US clients.

Following consultation with industry representatives, ‘who have given their support for the proposed course of action’, the agreements will follow the intergovernmental model as published by the US on 26 July 2012 and will be similar to the agreement between the US and the UK – according to a government statement by the States of Jersey. Therefore, formal negotiations are now due to take place and the intergovernmental agreements are expected to be signed ‘rapidly’.

When asked what the implementation of FATCA means for Jersey, Chief Minister Senator Ian Gorst stated that the implementation of FATCA is ‘necessary’ for the island’s finance industry to remain competitive. He added that conducting such intergovernmental agreement with the US Government, in partnership with Guernsey and the Isle of Man, is considered to be the ‘best course to adopt’.

Gorst said that such move comes as many countries all over the world are preparing for the 2013 FATCA legislation.

If you have any questions surrounding the FATCA legislation, speak to a deVere Financial Adviser today.

FATCA arrangements planned for Cayman Islands

As the Foreign Account Tax Compliance Act (FATCA) is set to start from January 1, 2013, countries, including the Cayman Islands are looking to come to an agreement with the US to implement arrangements and preparations that comply with both governments.

A representative of the Cayman Islands task force has explained how the ‘government is aware of FATCA developments, including the recent publication of the US Treasury’s Model 1 Intergovernmental Agreement to Improve Tax Compliance and to Implement FATCA’. Moreover, Model 2, which is still being developed between the US Treasury, Japan and Switzerland, will be ‘released soon’.

The government of the Cayman Islands is aware that the foreign financial institutions (FFIs) are taking the necessary steps to be in line with FATCA’s regulations, indeed, the Cayman Islands Premier Hon McKeeva himself has ‘recognised industry for its proactivity in ensuring its readiness for FATCA’.

The Cayman Island is one more location that is preparing itself for the inevitable regulations of FATCA which will affect US citizens around the world. FATCA is being implemented in an effort to stop US investors from avoiding US tax by using foreign subsidiaries to invest back in this country.

As Benjamin Franklin once said, nothing is certain in life except death and taxes, and at the deVere Group we comply with the law such regulations instigate however, it is a known fact that when an individual allows for the guidance of an international financial adviser, the former is likely to mitigate unnecessary taxes that only a professional would have been able to delineate.

If you are by law subject to comply with FATCA regulations, then please speak to a deVere financial adviser today to understand exactly how you can save your funds from unnecessary taxes.
FATCA advice – preparing for the looming legislation

The Foreign Account Tax Compliance Act’s (FATCA) implementation date is looming, as it is expected to start on 1 January 2013.

FATCA was created to disable American investors from avoiding to pay their US taxes as this act ‘imposes a 30% withholding tax on foreign entities’.

Ever since the announcement of FATCA, there have been turbulent discussions and decisions made by American investors and by international banks.

Indeed, there were many investors who renounced their American citizenship to be excluded from having to submit to this law. On the other hand, many banks such as HSBC and Deutsche Bank declared how they would not accept American investors in their financial institutions because of the ‘unnecessary burdens and costs.’

More criticism also came from experts in the field such as Wall Street claiming that ‘it was an excellent way for the IRS to make citizens pay for others’ tax breaks’.

‘US expatriates already face severe tax rules related to their non-US income and investments’ and now with FATCA being implemented very soon, these investors will be forced to pay more taxes.

Through this act, the IRS, Congress and the US Treasury Department will have significant control over American citizens who are living abroad as they will know how much they are earning and how much money they are investing.

As the world’s largest international financial consultancy, the deVere Group, which specialises in expatriates, has anticipated this new act and it has prepared itself in a manner that will suit American expatriates while still abiding by this new law.

Thanks to its independent status, deVere can search for the best investment deals for its clients from all over the world, hence easing the burden of this new act. If you would like to be guided in the right investment path, please speak to one of our Financial Advisers today.

For more on this story go to:

https://www.pic-uae.com/news/FATCA.aspx

See also iNews Cayman story today “FATCA Pushes Cayman Islands To Unveil Financial Secrets/FATCA, Lebanese banks ready to spill financial secrets”