If we are to believe the sceptics, no amount of tsunami training, evacuation routes or gathering points, will save Anguilla from the big wave called FATCA that threatens to overwhelm our already struggling economy and leave in its wake a bleak and lifeless financial services industry.
FATCA (Foreign Account Tax Compliance Act) seems to be an acronym that has many countries in our region, and internationally, very concerned. The legislation seems to have been grounded on the noble ideal of precluding United States citizens from engaging in transactions geared towards tax evasion. However, many believe that, as drafted, the legislation is far more wide-reaching. Why is this American law causing so much havoc? It seems the good old United States is once again applying the big stick method by using the threat of sanctions to get countries on board with implementing FATCA. However, because of the principle of the sovereignty of nations, American law simply cannot take effect in other jurisdictions without the support of the relevant Governments. The United States has therefore been entering into Inter-Governmental Agreements with countries with the expectation that countries will make FATCA a part of their domestic law.
In countries where FATCA is in effect, foreign financial institutions must report their United States customers to the Internal Revenue Service (IRS) or be subject to a 30% withholding tax on United States source income. This may appear innocuous, but can be a compliance nightmare and the reporting requirement can also conflict with the privacy laws in some countries. Where the latter occurs, the customer is only allowed to do business if they agree to waive their privacy rights under local law.
According to experts, the requirements of FATCA represent an unprecedented challenge for the global financial services industry. This is due in large part to the additional efforts and costs of compliance and impact on daily operations. The host of reporting requirements necessitate additional due diligence on the part of institutions. For example, institutions are required to identify the beneficial owners ‘behind’ foreign entities, corporations, trusts, mutual funds, etc. This is not a simple task and may require the investigative skills of highly qualified compliance and legal staff. The result is undoubtedly increased implementation costs, not to mention the resulting operating costs of those institutions that are impacted. Many institutions pass along these costs to clients in the form of higher fees which, in turn, have a negative impact on business not only for the institution but for the entire financial services industry in which these institutions operate. Some therefore describe FATCA as the “neutron bomb of the global economic system”.
Interestingly, even in more advanced economies, there is concern about FATCA. Permit me to quote extensively from an article in The China Post dated 3rd May 2014. The writer expressed the view that:
FATCA has far-reaching and blatantly negative impacts for Taiwan. The legislation disregards mutual respect of sovereignty among nations. It sets up a global financial fishbowl with personal financial information to be “shared” among governments worldwide…. It leads to higher taxes and, eventually, international taxation. It imposes expensive regulatory mandates on foreign and U.S. businesses, with costs passed on to consumers.
The act clearly violates existing trade agreements. It was not mutually negotiated, and can be viewed as a unilateral imposition of U.S. demands under threat of sanctions. The resulting regulations are one sided and can be changed by Washington anytime without Taiwan’s consent. The act further punishes “U.S. persons” and dual passport holders who work abroad, raises all account holders’ banking fees due to the high cost of implementation, exposes Taiwan bank employees to prosecution under U.S. law and ignores Taiwan privacy laws.
In addition to “U.S. persons” and local citizens, Taiwan’s banks should also be wary of the so-called fat cat legislation as it sets up banks to become spies for the U.S. Internal Revenue Service and other tax authorities both in Taiwan and abroad; it puts pressure on all banks to pay for costly implementation; it imposes sanctions on Taiwan banks with a 30-percent withholding tax and threatens to lock Taiwan out of U.S. financial markets.
Taiwan will in no way benefit by signing this law other than relief from these sanctions.
Such trepidation about the impacts of FATCA in a country that is developmentally leaps and bounds ahead of Anguilla, as well as the concerns of countries that are our more immediate neighbours, must signal the need for Anguilla to address this with caution. What choices are available to us in dealing with this matter? Have all our options been explored, or are we simply following along like an innocent lamb to the slaughter? Since the Governor has responsibility for financial services, we must ask – What is the UK Government’s position on this? Has its assessment of the situation determined that the introduction of FATCA is in the best interests of Anguilla? Or has it simply overlooked our circumstances in its efforts to remain in the United States’ “good book”.
These are all questions to which we have no answers. This is probably because, to date, there hasn’t been any effort to share information with the general public about FATCA before its impending introduction. We do not know what will be the end result for Anguilla. However, it is our hope that our local government, and the UK Government, would examine all the circumstances and do what is best for Anguilla and in keeping with our development goals.
