|Friday, 04 May 2012 11:12|
It has been over two years since the U.S. government passed the Foreign Account Tax Compliance Act (FATCA). However, with the law slated to become effective in January 2013, the consequences have sparked concern and controversy in the Caribbean.
The main objective of the law is to prevent "U.S. persons" from evading U.S. taxes by holding financial accounts outside the country. Effective January, 2013, offshore financial institutions will be required to report relevant information on U.S. persons to the Internal Revenue Service (IRS). "U.S. persons" are defined as U.S. citizens or U.S. permanent residents with accounts amounting to US$50 thousand or more. If these offshore financial institutions refuse to comply, the IRS will impose a 30 percent withholding tax on their U.S. source payments, including gross proceeds from securities and dividends paid to these institutions and their clients.
Caribbean financial institutions, including banks, credit unions, building societies, insurance companies and stock brokerages, are concerned that the law will have negative effects on Caribbean commerce.
The need for such regulations however again illustrates the duplicity among Caribbean nationals holding on to their U.S. residency but still seeking to reap the rewards from being Caribbean nationals.
It has been well known for years that U.S. persons among the Caribbean Diaspora have tried to dodge their tax responsibilities by depositing funds in offshore accounts. Such actions remove crucial revenues necessary to maintain the valuable public programs, from education to public facilities, which have often attracted Caribbean immigrants to the U.S. in the first place. It is only natural that the US government wants to collect every cent of tax revenues due to them.
One key criteria on which Caribbean migrants were granted citizenship or residency was to pay taxes to the U.S. government. Every citizen who swears in and every immigrant who received his or her green card knows the commitment such a relationship entails. It has been a law for generations that American citizens or permanent residents must report all income on their annual tax filings, including pensions, dividends, or salaries earned outside the U.S.
On the other hand, while it's expected that U.S. persons should abide by the tax laws of the U.S., one understands the concern of Caribbean financial institutions to report what in the Caribbean is considered confidential and privileged information. The Caribbean financial sector will potentially face losing crucial customers under the new regulations. The cost of following these new regulations to make the relevant reports will also place an additional financial burden on the system.
There is also the legitimate fear that respective Caribbean nations could see a decline in financial remittances from the U.S., since significant amounts of these remittances go through the formal financial institutions. Customers who remit large sums may be reluctant because of the new reporting requirements.
While the concerns of the banks are understood, what is not is the delay by Caribbean financial and government leaders to negotiate with the U.S. government to amend the FACTA requirements and alleviated some of the consequences. For sometime now, before the passage of FATCA, there have been indications that the U.S. planned to get information from offshore financial institutions to collect taxes.
Hopefully, it will not be too late for such negotiations. It is crucial that the viability of Caribbean financial institutions is not compromised because of this law. Notwithstanding however, Caribbean nationals who enjoy the benefits of being U.S, citizens or permanent residents must meet their tax obligations, for the sake of both the U.S. and the Caribbean region's financial stability.