Financial institutions urged to prepare for new US law

Jamaica’s Minister of Finance and Planning, Dr Peter Phillips, is urging local and regional financial institutions to prepare for the implementation of the United States (US) Foreign Account Tax Compliance Act (FATCA), which has implications for these entities.

“We are still at an early stage in the implementation of FATCA. My impression is that the final regulatory arrangements are still not clear, even in the mind of the US authorities, but nevertheless, we understand the asymmetries of power and influence that exist, and I think it is important that we be prepared here,” Phillips said.

The minister was addressing a seminar on FATCA, held in Kingston on Tuesday.

FATCA, which was enacted in 2010 by the US government as part of provisions under the Hiring Incentives to Restore Employment (HIRE) Act, is an important development in efforts by the US to combat tax evasion by US taxpayers with investments in offshore accounts.

This Act is of particular significance to the financial services sector in Jamaica and elsewhere in the region, as it places an obligation on foreign or non-US financial institutions to report to the US Internal Revenue Service (IRS), information about financial accounts held by US taxpayers, including entities in which the US taxpayer holds a significant ownership interest. 

Phillips said that the government would be putting in place several measures shortly to help institutions in Jamaica prepare for FATCA’s implementation in 2013. This will include the Bank of Jamaica carrying out a risk assessment on its licensees to determine the state of readiness of these entities and their systems.

“We will refer the available materials on FATCA to the Attorney-General’s Chambers for their advice as to the implications of the FATCA regime under Jamaican law. In particular, we will need to minimise the legal risks faced by our financial institutions,” he said.

The minister said he is aware that the US authorities are in discussion with the United Kingdom, France, Germany, Italy and Spain and probably other countries as well, with a view to entering into reciprocal bilateral arrangements with respect to the FATCA reporting regime, and that the government of Jamaica will be exploring the possibilities of entering into such an agreement.

“If this proves possible, the financial entities will be relieved of some liabilities particularly if reporting is done through the local central authorities who would be empowered to receive this information,” he added.

The minister said it is not known at present what would be the liability or responsibilities of the government under any such agreement, noting that “it’s all conjecture at this point, but it is something that we will explore with the US authorities."

Phillips said the government will continue to closely monitor developments and will continue its dialogue with the US authorities. He further noted that regulators at the Ministry of Finance will continue to work closely with local financial institutions, so that Jamaican institutions will not be placed at a disadvantage when FATCA is implemented next year.

“Even as we make our efforts, whether on the basis of bilateral interventions with the United States, or in partnership with other Caribbean countries, we will be strenuously seeking to ensure that there is no unfair advantage faced by Jamaican financial institutions, but equally, the message must be that we are facing an increasingly stringent global regime of tax compliance and we need to put our house in order in this regard,” he emphasised.

He argued that this new regulation, along with other global initiatives, are an indication that governments around the world are getting increasingly serious about collecting taxes, no matter who is affected. He said that financial authorities have determined that “tax havens or the possibility of avoiding paying tax in a jurisdiction ought to be eliminated."

The minister spoke of the implications of the Act on local financial institutions, if they fail to participate in FATCA. 

“If we choose simply to ignore it, it will render the financial institution ultimately liable to the withholding on all income, including gross proceeds of investment transactions sourced to a US asset at a 30 percent rate. So essentially, you will be foregoing 30 percent of all your income flows,” he said.

“There are several important risks that arise as a consequence of this to local financial institutions. There are the legal risks relating to the unauthorised disclosure of customer information; legal risks relating to withholding and or closing customers’ accounts; there are the operational costs and risks, relating to retrospective and additional due diligence and data transmission measures; and there are the risks related to the withholding on a foreign financial institution’s US income payments and possible closure of that foreign financial institution’s US accounts,” he said.

The minister assured that Jamaican customers of financial entities should have little to fear from this regime and there should be little risk, if any at all, of the information of the average Jamaican, “who is not a green card holder, not operating or residing in the United States. They should have no liability and need have no fear of any information being disclosed."

The seminar was hosted by the Jamaica Institute of Financial Services (JIFS), in collaboration with Deloitte. 

The Institute was established as the Jamaica Institute of Bankers (JIOB) in 1977, by the Bank of Jamaica and the commercial banks. In 1999, the Jamaica Bankers Association (JBA) assumed full responsibility for its operations. The name change took effect in May 2012 to reflect its mandate to support the entire financial services sector through training, research and social exchange.

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Date Posted

June 26 2012