The Republic Bank Group has mobilized efforts to ensure compliance with the Foreign Account Tax Compliance Act (FATCA) which was enacted by the US in 2010 as a means of staunching tax evasion by US persons.
The announcement was contained in the 2012 Republic Bank (Guyana) Limited annual report.
Republic Bank (Guyana) Limited, part of the Trinidad-based group is the first local institution to say publicly that it intends to comply with the US law. Prior to this announcement, neither local banks nor the government had commented on this law which could have broad repercussions for Caribbean bankers.
The Republic Bank report noted that under FATCA US persons holding financial assets outside of the United States are required to report these assets to the US Inland Revenue Service.
“It means, therefore, that foreign financial institutions such as the Republic Bank Group, must enter a special agreement with the IRS during 2013 to give effect to such reporting. To this end, the Republic Bank Group has mobilized efforts to ensure compliance with FATCA”, the report said.
Jamaica and Trinidad have been engaged in detailed discussions about FATCA but there has been nothing like that here despite the fact the compliance is required by next year. Two of the key issues have been who is defined as a `US person’ and the cost of compliance. US green card holders will also come under scrutiny.
In October this year the Trinidad Guardian reported Trinidad Central Bank Governor Jwala Rambarran as calling 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.”
“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’”, the Guardian reported Rambarran as saying
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.
In September, the Jamaica Observer reported that Jamaican financial stakeholders were lobbying for the Government to take on a US tax compliance law.
The stakeholders were still not clear how they will comply with the extra-territorial law and not break local privacy laws, while the state doesn’t yet know how it can intervene, the report said.
The Caribbean Association of Banks (CAB) took a position paper to Caricom back in June, when the group agreed to establish a task force to figure out how to take on FATCA, the report said. A regional position was to have been put together by a CAB meeting in Jamaica in November. Back in April, the Jamaica Gleaner reported that a group of financial sector players brought the matter to the attention of the public and, in particular, the Jamaican government.
They wanted the state to intervene in a similar way to countries, such as the UK, France, Germany, Italy and Spain, which initiated discussions with the US, towards establishing reciprocal bilateral arrangements with respect to the FATCA reporting regime.
In June, Finance Minister Peter Phillips said that the Government would put several measures in place to help institutions prepare for the new tax law’s implementation in 2013, including a risk assessment by the Bank of Jamaica.
The report also said that Jamaican nationals who frequent the United States including businessmen, athletes and entertainers could expect to see their income and savings above US$50,000 come under scrutiny under FACTA.
“The implementation of the US legislation means that the US will have more information than even the Jamaican Government on the financial and spending patterns of countless Jamaicans who are not even green card holders,” the Gleaner said.
