New US Rules A ‘Ticking Time-Bomb’
The United States Foreign Account Tax Compliance Act (FATCA) has the potential to affect every person or entity that has any interest in US assets. According to Trinidad and Tobago Central Bank Governor, Jwala Rambarran, this can be in terms of either capital value or income arising from those assets.
Speaking to local, regional and international securities regulators at the meeting of the Council of Securities Regulators of the Americas (CORSA), which was held in Port of Spain, Rambarran focused on FATCA.
He described the American legislation being imposed on other countries as “a ticking time-bomb, an attempt to convert foreigners into unpaid IRS (Internal Revenue Service) agents and a kind of US backward imperialism.”
Rambarran said the legislation requires foreign financial institutions to report directly all clients who are US citizens, green card holder living in the US or abroad or who are foreign entities in which US taxpayers hold a substantial ownership interest to the US IRS.
“A participating foreign financial institution will be required to deduct and withhold a 30 percent tax on all payments of US source income as well as US source capital gains made by recalcitrant account holders,” Rambarran said.
He added that the legislation is so structured that all accounts will be deeded non-compliant or recalcitrant unless the institution can demonstrate it undertook a rigorous due diligence process to prove it has no US account holders, otherwise a 30 percent withholding tax will be charged on all US based source income.
“Moreover, correspondent banks everywhere may refuse to deal with a financial institution unless that institution can show it is FATCA compliant,” Rambarran said.
He explained that FATCA’s aim was to target those who evade paying US taxes by hiding their assets in undisclosed foreign banks.
According to a November 2011 report from the Tax Justice Network, an independent group that promotes financial transparency, governments worldwide lose more than US$3 trillion in annual revenue because of tax evasion. Rambarran said the loss was equivalent to more than 5 percent of global GDP.
He added that the report also estimated that the US is rated at number one when it comes to citizens evading tax payments and loses US $377 billion a year, about 7.6 percent of total US government revenue.
“Apart from using the joint regional machinery of the CARICOM Secretariat to advance their collective interest in FATCA, I would also encourage Caribbean countries to build alliances with other jurisdiction in the Americas,” Rambarran said.
He urged the Inter-American Regional Committee, of which the Trinidad and Tobago Securities Exchange Commission, which was hosting the Port of Spain meeting, to use their influence with the International Organization of Securities Commission to highlight FATCA implementation issues.
“Now is the time for Caribbean countries to put their case before influential and potential allies in the G-20 such as Brazil and Canada, which together represent the Caribbean region on the Executive Boards of the IMF and the World Bank. I believe that now is also the time for the Caribbean to develop a different engagement model with China. China may prove to be an invaluable ally to the Caribbean,” Rambarran said.
Also addressing the meeting, Trinidad and Tobago Minister of Finance and the Economy, Larry Howai described the new legislation being introduced by the US on foreign financial institutions as onerous.
“FATCA introduces what I would describe as onerous reporting requirements on our financial institutions as well as non-financial foreign entities and will enforce a withholding tax where the desired documentation and reporting requirements are not met,” Howai said.
The withholding tax to which he referred is 30 percent of all US based income.
“Our financial institutions expect the Act to impact their processes and operations, customer service and technological systems. I am aware that some attempt is being made to address this issue through the establishment of a Regional Task Force. It is therefore my hope that we can mobilise our regional machinery and speak with one voice to resolve challenges such as this,” Howai said.
The minister noted that, regarding the local securities sector, government is preparing legislation aimed at strengthening the regulatory and supervisory regime in accordance with international best practice as developed by the International Organization of Securities Commissions.
“The proposed legislation will be laid in the Parliament this week and is intended to replace the existing Securities Industry Act, 1995,” Howai said.
He said the Bill will seek to address deficiencies in the previous Bill relating to regulator access to records of market participants, sharing information with other regulators, record-keeping and confidentiality provisions.
The minister noted that failure by government to enact this Bill into law this year will result in Trinidad and Tobago being blacklisted by IOSCO.
Originally Published By Caribbean News Now!Trinidad and Tobago