FATCA is a benefit to Jamaica
Dayle O. Blair, Contributor
THE FOREIGN Account Tax Compliance Act (FATCA) is an important development in the United States' (US) efforts to improve tax compliance, with the Internal Revenue Services (IRS) focusing on Foreign Financial Assets (FFA) and offshore accounts in order to catch tax dodgers and tax cheats.
At the announcement of FATCA, most Foreign Financial Institutions (FFI) were nervous because it appeared that financial institutions would have to breach privacy laws by providing the IRS with what would be considered confidential customer information.
The US government has sought to dispel those fears by signing what are called Inter Governmental Agreements (IGAs) with almost 100 countries, including Jamaica.
What are IGAs?
Under FATCA, countries have a choice of two IGA approaches. The first model, which is preferred by the FFIs, and is the model that the Government of Jamaica has signed, requires FFIs to report FATCA information directly to an authority within the country, such as a revenue authority, and that authority will report the FATCA information directly to the IRS.
In Jamaica's case, the authority would be the Bank of Jamaica (BoJ), because there is a tax treaty in place. Another approach involves FATCA information sharing; where the FFIs gather information on their customers and report it directly to the IRS.
What Jamaica has done?
In 1983, Jamaica may have laid the foundation for its IGA, when the then Jamaica Labour Party Government, led by Edward Seaga, signed a tax treaty with the US. Then, in June of 2013, the Government of Jamaica amended the Revenue Administration Act (RRA), which will facilitate IGA. With the 1983 tax treaty with the US and the IGA, FACTA information on customers can be shared without violating the laws of Jamaica.
The RAA has been amended to provide the exchange of information for tax purposes between countries under agreed treaties. The meaning of 'taxpayer' has been extended to include whether or not a person is residing in Jamaica; if something is not relevant to Jamaica, it could be of interest to international tax agreements. The amendment of the act gives the Jamaican tax authorities the right to exchange information under various Double Taxation Agreements.
A taxpayer does not have to be contacted if tax authorities need production orders i.e., no secrecy law protection for matters of disclosure of information or the production of documents.
The cost of compliance
Compliance with FATCA could be costly to FFIs as the costs will take the form of software, manpower, and penalty for non-compliance. While an accurate cost may be difficult to determine, it will vary from institution to institution. The FFIs that are a branch of a large multinational may be better off as the development of software may be used across many jurisdictions to access data as systems were not initially formatted to capture and analyse such information.
Therefore, software may be expected to be the biggest cost. Making the internal systems and processes capable of handling FATCA requirements will be expensive, but once implemented, the costs probably will be significantly reduced.
It is estimated that in some countries, it could cost large FFIs initially upwards of US$100 million to comply with FATCA, and those costs would have to be absorbed by the institutions as the US government will not be writing a cheque.
Locally, information on costs is difficult to come by. This writer was unable to get cost information from our regulators. However, I have seen estimates as much as US$30 million for large financial institutions, and one individual saying that if Jamaican financial institutions choose to comply, costs are expected to run from US$100,000 to upwards of US$1 million.
Most of the local costs would come from manpower, and would arise from due diligence of going through accounts individually and finding out who are considered US persons i.e., US citizens, green-card holders, certain non-resident aliens with business connections in the US, and those who spend more than 183 days in the US per year, etc.
While FATCA may appear burdensome to governments and FFIs, there are benefits as it may help the Jamaican Government identify tax cheats and it will help the FFIs better know their customers.
Dayle O. Blair is an attorney-at-law, certified public accountant and a certified international tax adviser. He can be reached for comments at email@example.com, firstname.lastname@example.org or 876-906-1016 or 876-625-9680.