Monday, April 15, 2024

BEHIND THE HEADLINES: Moving closer to full implementation


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It was labelled a “John Doe” summons and it sought information about American taxpayers with offshore accounts at CIBC FirstCaribbean International Bank (FCIB) and across the rest of the Caribbean.
And when it was served on FCIB in Barbados, bankers across North America, Europe and the Caribbean took note. That’s because it sent a strong message to foreign financial institutions that the United States (US) Justice Department, the Internal Revenue Service (IRS) and the federal courts were determined to implement the controversial and costly provisions of the Foreign Account Tax Compliance Act (FATCA), which from July 1 will require foreign banks, insurance companies and other financial institutions to keep track of and report to the IRS the financial transactions of Americans.
“The new rules require foreign financial institutions (FFI’s) to provide the [IRS] with information on certain US persons invested in accounts outside of the US and for certain non-US entities to provide information about any US owners,” was the way Deloitte, the major global accounting firm, put it.
Financial institutions in the more than 190 United Nations member-states, Barbados and its Caribbean neighbours among them, are bracing for any nightmares FATCA may trigger, knowing that failure to comply would be costly.
“The issue has reached a fever pitch as we get to within three months of the FATCA implementation date, with many financial firms saying they are still not certain on how they will handle FATCA compliance,” said Joe Harpaz, a financial analyst and contributor to Forbes magazine.
“In three months pretty much every financial firm with US customers is going to have to sort through five different types of IRS forms – only available in English – to figure out how to accurately keep track of their fiduciary relationship,” added Harpaz.
Passed by the US Congress in 2010, FATCA aims to clamp down on alleged tax evasion by US citizens who use foreign accounts to avoid reporting all of their assets and earnings to the IRS. Foreign banks and insurance companies, indeed any financial institution must identify Americans who have investments or bank accounts or both outside of the US. The IRS will use what they provide to compare the information contained in the annual tax returns of individuals and corporations.
Stated simply, banks must report American clients with US$50 000 or more in foreign in overseas accounts.
“The Department of Justice and the IRS are committed to global enforcement to stop the use of foreign bank accounts to evade taxes,” warned Kathryn Keneally, Assistant US Attorney-General for the Department’s Tax Division.
“This John Doe summons is a visible indication of how we are using the many tools available to us to pursue this activity wherever it is occurring.”
    But the Justice Department and the IRS may not hold all the cards when it comes to foreign tax compliance in the years ahead.       There is a gathering storm of opposition in and out of the US to what many see as overreach by Washington into foreign countries.
    The Republican National Committee has included a repeal of FATCA in its platform for the upcoming mid-term election, whose outcome may usher in Republican control of both branches of the Congress – the House of Representative and the Senate.
In addition, the US Credit Union National Association (CUNA), which represents most of the 7 000 credit union across the country, is pressing for repeal.
“FATCA, if left in place, will impose billions of dollars of compliance costs on US credit unions and banks annually,” warned Bill Cheney, CUNA’s head, in a letter to Republican Senator Rand Paul.
The World Council of Credit Unions, the umbrella body for credit unions in Europe, the Caribbean, North America, Asia and Latin America has also joined the call for repeal.
A loud voice supporting the drive to repeal FATCA is the Centre for Freedom and Prosperity, a conservative organisation in Washington.
“The costs of FATCA’s misguided fiscal imperialism are mounting,” charged Andrew Quinlin, the centre’s president. “It is past time for elected officials to wake up to the unmitigated disaster that they have unleashed upon the world.”
Quinlin was quick to cite a proposed bit of legislation in the Senate that was introduced to repeal FATCA.
“Burdens imposed by FATCA have sparked significant opposition throughout the world, as foreign institutions are expected to bear the costly burdens of implementing a law that is expected to raise little revenue – a mere US$800 million per year,” complained the CF&P.
With President Barack Obama in the White House until 2016, any early repeal of FATCA would at the very least be two years away. The Republicans must first hold onto their majority in the House and take control of the Senate with veto-proof control, an unlikely development
in November.


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