Nelson A. King
WASHINGTON D. C., United States, Monday January 28, 2013 – The United States Department of the Treasury and the Internal Revenue Service (IRS) have issued what they describe as “comprehensive final regulations” to combat Caribbean and other offshore tax evasion.
The departments said the reporting and withholding tax provisions, commonly known as the Foreign Account Tax Compliance Act (FATCA), “target non-compliance by US taxpayers using foreign accounts.
“The issuance of the final regulations marks a key step in establishing a common intergovernmental approach to combating tax evasion.
“These regulations provide additional certainty for financial institutions and government counterparts by finalizing the step-by-step process for US account identification, information reporting, and withholding requirements for foreign financial institutions (FFIs), other foreign entities, and US withholding agents,” the statement said.
Deputy Secretary of the Treasury Department, Neal Wolin, said the regulations “give the administration a powerful set of tools to combat offshore tax evasion effectively and efficiently.
“The final rules mark a critical milestone in international cooperation on these issues, and they provide important clarity for foreign and US financial institutions,” he added.
The Treasury Department said the final regulations “build on intergovernmental agreements that foster international cooperation”.
It said it has collaborated with Caribbean and other foreign governments to “develop and sign intergovernmental agreements that facilitate the effective and efficient implementation of FATCA by eliminating legal barriers to participation, reducing administrative burdens, and ensuring the participation of all non-exempt financial institutions in a partner jurisdiction”.
In order to reduce administrative burdens for financial institutions with operations in multiple jurisdictions, the Treasury Department said the final regulations “coordinate the obligations for financial institutions under the regulations and the intergovernmental agreements”.
Since the proposed regulations were published on February 15, 2012, the US Department of Treasury said it has collaborated with Caribbean and other foreign governments to develop two alternative model intergovernmental agreements “that facilitate the effective and efficient implementation of FATCA”.
It said these models serve as the basis for concluding bilateral agreements with interested jurisdictions and “help implement the law in a manner that removes domestic legal impediments to compliance, secures wide-spread participation by every non-exempt financial institution in the partner jurisdiction, fulfills FATCA’s policy objectives, and further reduces burdens on FFIs located in partner jurisdictions”.
The department said seven countries have already signed or initialed these agreements, identifying them as Norway, the United Kingdom, Mexico, Denmark, Ireland, Switzerland, and Spain.
The Treasury Department disclosed that it is also “engaged” with more than 50 countries and jurisdictions, including some unidentified ones in the Caribbean, “to curtail offshore tax evasion”.
It said “more signed agreements are expected to follow in the near future”.
The FATCA was enacted in 2010 by the US Congress as part of the Hiring Incentives to Restore Employment (HIRE) Act.
The FATCA requires FFIs to report to the IRS information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a “substantial ownership interest”.
In order to avoid withholding under FATCA, the Treasury Department said a participating FFI will have to enter into an agreement with the IRS to identify US accounts, report certain information to the IRS regarding US accounts, and withhold a 30 percent tax on certain US-connected payments to non-participating FFIs and account holders, “who are unwilling to provide the required information”.
The Treasury Department said registration will take place through an online system.
It said that FFIs that do not register and enter into an agreement with the IRS “will be subject to withholding on certain types of payments relating to US investments.
“Treasury and IRS will continue to work closely with businesses and foreign governments to implement FATCA effectively,” the statement said. (CMC) Click here to receive free news bulletins via email from Caribbean360. (View sample)