JBA says local US account holders safe
The Jamaica Bankers Association (JBA) says it's unlikely that any local bank will close out individual US accounts to avoid the costs associated with the US Foreign Account Tax Compliance Act (FATCA).
"I am not aware of any commercial banks that are refusing to do business with US citizens or are asking US citizens to move their accounts," said JBA President Bruce Bowen.
"So long as a commercial bank or other financial institution maintains correspondent banking arrangements or bank accounts in the US, they are not able to avoid dealing with FATCA, either by agreeing with the IRS to adhere to the reporting requirements or by accepting the penalty costs of doing business without agreeing," he said.
Bowen was reacting to international news reports on Monday saying that some banks had taken the hard decision to ask US account holders to take their business elsewhere as one response to the pending Internal Revenue Service (IRS) requirement that foreign banks report US account holders to them.
"Some banks may close accounts of US citizens and sell off US holdings rather than comply," reported Forbes.com in January, which said total foreign investment in the US currently exceeds US$21 trillion.
Regarding the actual costs being experienced as FATCA due diligence proceeds, Bowen restated that the cost to each institution will depend upon the nature of their customer base and their existing system capabilities.
"In Jamaica, I know that all banks are working to be compliant with the requirements to identify US persons in their customer base and, based upon the final rules, will have to put in place processes or systems to meet the reporting requirements," he said.
"Non-bank financial institutions, which fall within the scope of FATCA, that do any business in the US, should also be working on these matters."
FATCA aims to improve US tax compliance involving foreign financial assets and offshore accounts. US taxpayers with specified foreign financial assets that exceed a threshold of US$50,000 must report those assets to the IRS.
The law, which takes effect next year, requires foreign financial institutions to report directly to the IRS information about financial accounts held by US taxpayers, or held by foreign entities in which US taxpayers hold substantial ownership interest.
Overseas institutions that don't sign an IRS agreement will face withholding charges on US-source interest and dividends, gross proceeds from the disposition of US securities, and pass-through payments.
Further, after identifying US account holders, the institutions must impose a 30 per cent tax on payments or transfers to account holders who refuse to identify themselves.
The penalty for non-compliance is the annexation of 30 per cent of bank funds held in the US.
To ensure that their own assets are not seized, banks and financial institutions must enter into an agreement with the IRS to identify US accounts; report certain information to the IRS regarding US accounts; and withhold 30 per cent on certain payments to non-participating foreign financial institutions and account holders unwilling to provide the required information.
Bowen said Monday that the likelihood of any local bank shutting out local account holders to avoid the onerous reporting duties is dim.
Instead, they are petitioning the Simpson Miller administration to push for a government-to-government agreement with the US to facilitate FACTA reporting and so ease some of the stress associated with the new regime.
"The JBA continues to urge the Government of Jamaica to proceed expeditiously to finalise an inter-governmental agreement with the US in order to ease the cost to local financial institutions of meeting the FATCA reporting requirements," he said.