U.S. Signs FATCA Deal with Cayman Islands
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The U.S. Treasury Department has signed intergovernmental agreements with the Cayman Islands and Costa Rica in an effort to combat offshore tax evasion as part of the implementation of the Foreign Account Tax Compliance Act.
FATCA, which was included as part of the HIRE Act of 2010, requires foreign financial institutions, including hedge funds, to report on the holdings of U.S. taxpayers to the Internal Revenue Service, or else face stiff penalties. The law has provoked controversy both in the U.S. and abroad, with some foreign governments and banks complaining that the law violates banking confidentiality laws, and with U.S. expatriates and dual citizens finding themselves owing taxes to the U.S. government that they never had to pay before. The law has also apparently prompted a record number of people renouncing their U.S. citizenship this year. The State Department reported last month that the number of citizenship renunciations jumped from 742 in 2009 to over 1,854 this year so far.
To help address some of the concerns, the Treasury Department has been negotiating a series of intergovernmental agreements with foreign governments, under the authority of their existing tax treaties, while also delaying some of the provisions. The latest agreements, signed last week with the Cayman Islands, a country long used as an offshore tax haven, and the government of Costa Rica, mark an important step for the U.S. efforts to reach accords on FATCA with other nations.
“Today’s announcement marks a milestone in the effort to promote global tax transparency,” said Deputy Assistant Secretary for International Tax Affairs Robert B. Stack in a statement last Friday. “These agreements underscore growing international cooperation in the effort to end tax evasion everywhere.”
FATCA, enacted in 2010, seeks to obtain information on accounts held by U.S. taxpayers in other countries. It requires U.S. financial institutions to withhold a portion of payments made to foreign financial institutions, or FFIs, that do not agree to identify and report information on U.S. account holders. FFIs have the option of entering into agreements directly with the IRS, or through one of two alternative Model IGAs signed by their home country.
“By working together to detect, deter, and discourage offshore tax abuses through increased transparency and enhanced reporting, we can help build a stronger, more stable, and accountable global financial system,” said Julie Nutter, Minister-Counselor for Economic Affairs at the U.S. Embassy in London, who signed on behalf of the United States. “We look forward to collaborating with the Government of the Cayman Islands to further these objectives.”
The Costa Rica IGA was signed on Tuesday, November 26, and is a Model 1A agreement, meaning that the United States will also provide tax information to the Costa Rican government regarding Costa Rican individuals with accounts in the United States.
“Today’s signing marks a significant step forward in our efforts to work collaboratively to combat offshore tax evasion—an objective that mutually benefits both our countries,” said Gonzalo R. Gallegos, Chargé d’Affaires of the U.S. Embassy in Costa Rica, who signed on behalf of the United States.
In addition to the 12 FATCA IGAs that have been signed to date, the Treasury Department said it has also reached 16 agreements in substance and is engaged in related conversations with many more jurisdictions. For updates and further information, visit the IRS FATCA page.
Source: Accounting Today