There is some apprehension in Anguilla as if, almost in hurricane terms, financial institutions on the island are bracing for FATCA – a US Foreign Account Tax Compliance Act, with less than a month to go before its implementation.
The Act will require information on monetary assets of over US$50,000 held by US taxpayers, or foreign companies in which US taxpayers hold substantial ownership interest. The information will be requested by the US Internal Revenue Service (IRS). The requirement also appears to target Anguillian-owned companies in which Anguillian shareholders ,or investors, hold American citizenship and are US taxpayers. This perhaps needs to be clarified.
The law is said to have been designed to curb the use of offshore accounts in Anguilla, and other countries and territories, by US persons for tax evasion. Foreign financial institutions failing to comply with FATCA will face a 30% withholding tax on their US-sourced income.
The Anguilla Government, and financial services industry companies, are said to be unable to do anything about the impending matter for fear of causing difficulties for the operations of banking and other financial systems on the island, or becoming involved in a conflicting situation. In fact, the Anguilla House of Assembly is to meet shortly to pass legislation to give effect to the provisions of the US tax compliance law. It is also being arranged for the Anguilla Inland Revenue Department to be a sort of clearing house for the relaying of the necessary financial information to the IRS.
The Government of Anguilla has confirmed that it is actively engaged in dialogue with the US Government. The local legislation to be passed in the House of Assembly will be the Foreign Account Tax Compliance (USA) (Implementation and Enforcement of Inter-Governmental Agreement) Bill 2014. Under the legislation, Anguillian institutions will be required to share financial information with the IRS. Mr Perin Bradley, Compliance Manager, in the Ministry of Finance, will be the Anguilla Government’s point of contact person for FATCA in Anguilla; and, in the meantime, talks are being coordinated with the Eastern Caribbean Currency Union Working Group on FATCA.
The US Treasury announced a few days ago that over 70,000 foreign institutions world-wide had registered with FATCA. Included in that list, up to June 2, were 71 Anguillian entities. The agreement will take effect on July 1, 2014, but, according to the IRS, 2014, and 2015 will be regarded as a transitory period for IRS enforcement and administration. As a consequence, “the US Government will employ a light touch approach as long as countries can demonstrate a ‘good faith’ effort to meet their obligations.”
With the impending requirement facing Anguilla, a spokesmen for the Chamber of Commerce and Industry, interviewed by The Anguillian, urged caution in how the process of the compliance arrangement is carried out, saying the devil can be in the details. “FATCA is upon us and there is little we can do about it but, at the same time, there is a lot that can be done,” the business professional reasoned. “What I mean about that is that the Government of Anguilla will have to sign on to FATCA because it is an OECD initiative that the Americans are taking the lead on. Today it is the Americans; tomorrow it is going to be the British; the next day it is going to be the French – and the process will go on and on.
“This is going to be a world-wide compliance, but the devil is in the details and I will give you an example. Many of our citizens in Anguilla – and I suspect throughout the Caribbean – have various US connections. They either have a Green Card; a US Passport because of an incident of birth, but they don’t live or work in the US and, of course, they do have US tax obligations to report. But let us take an example where a person is living and working here, but has no US-sourced income. How are you going to deal with that? Let me quote from a relevant document: ‘The US Government has stated on many occasions that FATCA is geared towards combating tax evasion by US persons with US-sourced incomes in foreign financial institutions outside the United States.”
The Spokesman continued: “If a guy is an Anguillian by birth, citizenship, or whatever, and runs a business here, he may be a US citizen by virtue of birth or by getting a Green Card, but [I don’t think it is the intent of FATCA to reach out to see what those people are doing]. The intent of FATCA is to look for Americans who have salted their money overseas in bank accounts. Those are the people they want to reach.
“I think when we do our negotiations, the appropriate carve outs need to be made to make sure that the intent of FATCA is honoured to prevent the usual ‘fishing expeditions’ that can occur with this kind of legislation.
“About the cost of compliance, there is no secret that our financial institutions here are already under stress. Who is going to pay for this new level of compliance? Our Government, from everything I read and heard, is already cash-strapped. Who is going to pay for this extra layer of compliance? Our businesses are virtually functioning in a state of collapse and have to provide more reporting. Who pays for all of this and this – is my problem with these so-called international obligations. They impose these things, but the real cost is not determined, and that is why I say that the deal that we negotiate with the Americans, ultimately, needs to be mindful of its costs, and try to have the requirements as narrowly defined as possible.
The Chamber of Commerce spokesman suggested that: “The Government should seek to incorporate a number of private sector organisations, which have experience in these areas, in order to be properly informed about various issues. We need to go the table with a broad group of negotiators – a team whereby we can walk away with the best possible agreements.
“All of our Governments, over the years, have really not utilised the private sector sufficiently in helping them to increase the capacities of their resources to negotiate these agreements. We have some very knowledgeable people on this island who can sit at a table as advisers so that we can end up with something that is beneficial to Anguilla – and doesn’t impose any additional burdens on us because our economy is already under severe stress.”
As mentioned above, many other countries have undertaken to enact similar legislation – detailing certain obligations, due diligence requirements and reporting protocols – with the United States. A similar agreement was signed between Anguilla and the UK in December 2013.
FATCA is the latest in a growing trend towards the automatic sharing of information between tax authorities world-wide. In February 2014, G20 leaders endorsed a common reporting standard of automatic exchange of information, which is being driven by the Organisation for Economic Cooperation and Development (OECD).
Anguilla is one of the last Overseas Territories to conform to the requirements, the other OTs and Crown Dependencies having already done so. The FATCA requirement is described as one “in a series of moves designed to show Anguilla’s commitment to openness and transparency and bolster our reputation as a well-regulated financial service jurisdiction,” according to a Government statement.
