We use cookies to give you the best online experience. By using our website you agree to our use of cookies in accordance with our cookie policy. Learn more here.Close Me
The Foreign Account Tax Compliancy Act, known as FATCA, is
causing problems for banking jurisdictions such as Cayman Islands,
Panama or the Bahamas. Although the law is targeted at American
citizens, it can have many unwanted implications for non-US
citizens alike.
Under FATCA, any bank anywhere in the world serving US citizens
will be required to report on US account holders and disclose their
balances, receipts, and withdrawals to the US tax authorities or
face a 30% withholding tax on financial assets held in the US by
the said bank.
Obviously, the goal is to increase tax compliance of American
owned bank deposits abroad, but what it in effect does is
attempting to regulate sovereign (banking) jurisdictions, requiring
them to amend laws and change procedures.
This does not sit well with many countries, though few have
objected on moral grounds. Some countries, such as the Bahamas,
simply lack the legal framework to comply. Under FATCA The United
States Internal Revenue Service (IRS) shall conclude Inter
Governmental Agreements (IGA's) to facilitate automatic
exchange of information with foreign tax authorities, but the
Bahamas do not have tax authorities because they have no income
tax. Instead
the Bahamas have to make a decision whether to take the
individual route through foreign financial institution
agreements(FFI) or to comply on a collective basis. The IRS
obviously prefers a collective approach, otherwise some banks might
opt-out of FATCA and neutralize the desired result.
Panama is facing a similar problem. Although the country has tax
authorities (as well as an income tax), Panama has nothing to gain
by exchange of information because of its territorial tax system
where all forms of foreign income are tax exempt. The Panamanian
government already concluded some tax information exchange
agreements but the regulatory framework is rudimentary at best.
There are also many legal and constitutional questions regarding
such agreements that remain unanswered. So far Panama has not
exchanged any information based on these treaties and politicians
are keen on delaying implementation until the elections of 2014.
Panama leans on financial services for more than 70% of her exports
and dancing to US requests is not a popular tune here.
In the end, the costs for the US economy will be higher than the
gains. Especially American expats who already experience
difficulties opening a bank account abroad will find it nearly
impossible once FATCA is enacted. It does not matter how many
countries give in to these demands, or even if countries such as
Switzerland give up their banking secrecy. Increased tax compliance
will simply not offset the costs of compliance banks face and the
United States are risking financial isolation.
But up until countries start to turn their backs on the US and
other greedy high tax nations, our company and our clients will be
confronted with ever more paperwork, bank fees and bureaucracy.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Cayman Finance, which represents much of the financial community in the Cayman Islands submitted a letter on May 22nd highlighting massive inaccuracies in an article by Sir Simon Jenkins.
One of the fundamental principles of company law is that a lawfully incorporated company has a legal personality and identity that is separate from its directors or shareholders.
Reports in the UK suggest a dossier of more than 100 names of people with money here, and other tax free jurisdictions, has been compiled to find those who are avoiding paying tax.
14 May 2013 (Cayman 27) The head of Cayman Finance has rejected claims from economist Jeffrey Sach that some residents here sit on hundreds of hedge fund boards.
Following on from our recent article on the Companies Act 2011, the Companies Act 2012 further demonstrates the Isle of Man’s commitment to seeking transparency in the ownership of companies.
As the private client industry in Jersey seeks to attract clients from the emerging jurisdictions it is likely to become increasingly involved with putting in place succession planning and asset protection structures that relate to family businesses.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
