Everald Dewar | The FATCA effect on Jamaican taxes
American residents or nationals, citizens and green card holders - persons of interest - living in Jamaica are required to file US tax returns and must, by voluntary disclosure, fill out a form to disclose 'foreign assets'.
The filing of a Foreign Bank and Financial Accounts Report (FBAR) is an annual requirement of the United States Treasury Department.
This form is like telling your life's story or sitting exams under penalty of pain or death. But unlike any exam, a wrong answer could mean one can be charged with committing perjury.
Some of these offences can give cause for the issuing of extradition arrest warrants. Failure to file US tax returns, or filing false tax returns, or wilfully not filing a FBAR could all be perceived as tax evasion and criminally punished by imprisonment and/or substantial fines.
Most US 'persons of interest' in Jamaica probably owe no US tax at all, but may not realise they are still required, file a tax return; or may not have known that they were required to make a report on bank accounts or assets held jointly with a spouse. That report would include interest in a business, even if it is only constructive ownership - that is, where the asset is not held in your own name.
Readers have been bombarded with a constant supply of literature on the Foreign Accounts Tax Compliance Act (FACTA), under which the US has entered into cross-border agreements with other countries, including Jamaica, so to rehash them here would be a waste of space.
The Government of Jamaica is
in the process of finalising
an 'automatic exchange of information' agreement with the US.
This reciprocal arrangement would fall under the umbrella of 'international tax agreements', which are provided for in the Revenue Administration Act (RAA).
The commissioner general will use his powers under RAA to obtain information from third parties, including requests for documentation from financial institutions. This, then, should facilitate the exchange of information for FATCA reporting.
The main feature of the agreement is therefore for financial institutions to supply Tax Administration (TAJ) with the relevant information. The Government then has an obligation to transmit this to the Internal Revenue Service in the US.
What most taxpayers are yet to contemplate is that under this arrangement, the TAJ can also receive information on assets in the US that may be held by Jamaicans, whether jointly or singly. This includes banking and investment data.
The TAJ may consider this information in its assessments in arriving at tax liability due locally.
In theory, the US can prosecute accounting, legal, tax and financial advisers who assist clients hiding assets outside the country.
Therefore, advisers acting for persons of interest may need to consider the potential civil penalties that may accrue to their clients and, in some instances, themselves. The definition of taxpayer in our local legislation has changed to include persons of relevance to the US.
Our accounting profession is governed by codes of practice and the execution of their advisory services may become relevant, for example, where an accountant, lawyer or tax adviser knows of unreported taxes, he may need to advise the client to rectify such a situation.
Some professionals are interpreting the Anti-Money Laundering Act as an obligation on an adviser or his firm to be alert to any suspicion of tax evasion. This is because such unpaid tax would be criminal property.
The US is using FACTA to enrol the world's financial sector as agents to 'hunt down' its delinquent taxpayers. This should increase compliance cost to all financial institutions.
With FATCA, it is the banks that must report the information on these persons of interest. Therefore, to say that an individual is being FACTA-compliant is misleading as only a financial institution can be FACTA-compliant.
What if an institution refuses or is non-compliant - that is, 'recalcitrant'? Then, under FATCA, it faces a 30 per cent withholding tax on payments made to it in the US. It could also face penalty under the RAA.
It was always felt that the US did not have the resources to find its taxpayers abroad, so could never fully enforce its tax rules. Well, here comes FATCA, which may well prove to be the game changer.
Everald Dewar is senior taxation manager at BDO Chartered Accountants in Kingston.