FATCA: Rapidly becoming the global model for combating offshore tax
Dayle Blair, Guest Columnist
Who else is following in FATCA's footsteps?
THE FOREIGN Account Tax Compliance Act (FATCA) is an important development in US efforts to improve tax compliance, with the Internal Revenue Services (IRS) focusing on specified foreign financial assets and offshore accounts in order to catch dodgers and tax cheats.
While FATCA has not found favour with everyone, there are proposals in Congress to repeal or reconsider the law, but I doubt that is going to happen. The words of powerful United States senator, Rand Paul, Republican ,of Kentucky, said when he introduced a bill this year to repeal FATCA: "FATCA is a textbook example of a bad law that doesn't achieve its stated purpose, but does manage to unleash a host of unanticipated destructive consequences."
The senator further said, "Tax evasion is a problem that should be addressed, but not in an egregious way."
Republicans Carolyn Maloney; Democrat ,New York, Charles Rangel; and Mike Honda, Democrat, California; introduced a bill in the House of Representatives last year to create a bipartisan commission to study the impact of government policy on Americans living abroad. You should note that it is the same Rangel who co-sponsored FATCA in 2009.
The United States has signed an agreement with the Cayman Islands, implementing FATCA. The US Treasury Department said, on November 29, that the bilateral agreement represents the first FATCA agreement in the Caribbean and Central America.
The IRS said, "FATCA is rapidly becoming the global model for combating offshore tax evasion and promoting transparency."
The Cayman Islands signed a 'Model 1B agreement' , November 29, meaning financial institutions in Cayman will be required to report tax information, about US-account holders, directly to the Cayman Islands Tax Information Authority, which is the sole channel in the Cayman Islands for sending tax-related information to other governments.
The giving of information by Cayman is a serious blunt to offshore tax evasion, that some estimate more than US$10 trillion are invested in Cayman.
One US president has said there is one address in Cayman where more than 19,600 Americans use as their address to conduct offshore business.
The Ministry of Financial Services, Commerce & Environment has reported that, as of November 2013, the Cayman Islands and the United Kingdom signed what is called a "FATCA-type" agreement. The agreement paves the way for Cayman Islands to "automatically share financial information with the UK on UK taxpayers who hold Cayman Islands accounts."
In October, Barbados signalled its intention to the US, concluding a reciprocal inter-governmental agreement to apply to the US's FATCA, Prime Minister Freundel Stuart said.
He said Barbados was "aware that an atmosphere of certainty was needed for domestic and international operators in our banking sector and other entities which met the criteria of foreign financial institutions under FATCA to thrive".
Is a Canadian FATCA coming soon?
The Canadian government surely is not going to sit by and see its neighbour collect billions from its citizens living abroad and do nothing. So while Canada doesn't have its own FATCA yet, it does have a FATCA-like system that went into high gear earlier this year after the budget was read.
The country is trying to collect money from the many Canadians living abroad and Canadian residents.
In the 2013 budget, the Canadian government instituted a new requirement for certain financial intermediaries to report to the Canadian Revenue Agency - the Canadian equivalent of the American IRS - all electronic funds transfers of $10,000 or more, and instituted a new whistle-blowing programme to stop international tax evasion.
As part of the new initiative, Canada has foreign-income verification reporting for 2013. If a Canadian who is resident in Canada owns the cumulative property, in excess of $100,000, at any time during the year, they must declare it. Failure to do so will result in a fine of $25 per day.
The properties that the Canadian government is interested in are: bank accounts, shares in foreign corporations, shares of Canadian corporation on deposits with foreign brokers, debts owed by non-residents, interest in partnership that hold specified foreign property, interest in foreign mutual fund, foreign lands and building and tangible and intangible properties located outside Canada.
FATCA is one of the most far-reaching tax laws that was ever envisioned by any government. Its effects are deadly and will surely reduce tax evasions, by not just Americans, but citizens of other nations, as we can see many countries, such as the UK and Canada, are adopting some FATCA-like model to improve their budgets, from money that may be offshore.
While some people in the United States Congress believe FATCA should be repealed, that is unlikely to happen, given the amount of money that the IRS has collected since FATCA became law in 2010.
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.