(Trinidad Guardian) Central Bank Governor Jwala Rambarran said yesterday that the US Foreign Account Tax Compliance Act (FATCA) has been described as “a kind of US backward imperialism,” and he called on Caribbean countries to “build alliances with other jurisdictions in the Americas that are equally affected by FATCA” to address the issue that is “of immediate concern to all regulators in the Americas.”
Rambarran was speaking at the meeting of the Council of Securities Regulators of the Americas (COSRA) at the Hyatt Regency Trinidad about FATCA, legislation passed in the US in 2010, which requires non-US financial institutions to report directly to the US Internal Revenue Service (IRS) all accounts held by US citizens or green card holders living outside of the US above a certain threshold.
“Since FATCA was enacted in March 2010 by the US government as part of the Hiring Incentives to Restore Employment (HIRE) Act, it has generated much heated debate and has been described in rather uncomplimentary terms. FATCA has been hailed as ‘a ticking time-bomb; an attempt to convert foreigners into unpaid IRS agents; (and) a kind of US backward imperialism’.”
He told the gathering of securities regulators from North, Central and South America, and the Caribbean, “to properly comply with these new reporting requirements, a foreign financial institution will have to enter into a special agreement with the IRS by June 30, 2013.”
Under this agreement, the financial institution will be obligated to obtain information to determine which account holders are US persons, comply with verification and due diligence procedures on such account holders as required by the IRS, and report annually to the IRS on the name and address of each US client, as well as the largest account balance in the year and total debit and credits of any account owned by a US person or foreign entities with substantial US ownership.
“The penalties for non-compliance are steep,” he said. If a foreign financial institution refuses to comply with these requirements, a withholding tax of 30 per cent will be applied on all US source income of that institution, regardless of whether or not such payment was made for the benefit of the US account holder, for another client, or for the institution itself, he said.
Foreign financial institutions “may broadly include” every member of the investment community and encompass banks, credit unions, custodians, asset managers, investment funds and pension fund schemes, brokers and insurance companies where their products have an investment element, he said.
In addition, FATCA requires US citizens and green card holders who have financial assets outside of the United States exceeding US$50,000 to report these assets to the IRS. FATCA focuses on the high net-worth individuals, the so-called FATCATs, he said.
“It would be quite easy for some non-US institutions to believe that they will not be affected by FATCA, as they do not have any US investors, but FATCA paints with a very broad brush,” he said. The legislation is structured so that all accounts will be deemed non-compliant or recalcitrant unless the institution can demonstrate it undertook a rigorous due diligence process to prove it has no US account holders. Otherwise the 30 per cent withholding tax will be applied, he said.
Securities regulators attending the conference heard that the United States government foregoes US$377 billion a year from tax evasion by US-based firms and individuals. “To put this sum in perspective, it represents some 7.5 per cent of total US government revenue. In addition, the Euro Zone countries of Italy, Germany, France and Spain as well as the United Kingdom are estimated to each lose at least US$100 billion in revenue every year to tax evasion,” he said.
On T&T’s readiness for FATCA, Rambarran said: “Our three Canadian and the US-owned banks are at the highest level of preparedness, having been part of their global parents’ programme of FATCA compliance.” The three Canadian banks are Scotiabank, CIBC First Caribbean International Bank and RBC Royal Bank. The US-owned bank is Citibank.
“The two large local banks (Republic and First Citizens) have initiated projects which would enable them to be well in train to comply with the FATCA requirements. The smaller banks are in the process of amending their Know Your Customer (KYC) procedures to identify US residents and citizens,” he said.
