Perhaps Offshore Financial Centres (OFCs) have learnt a thing or two in the last twenty years since the start of the OECD assault on ‘tax competition’ because the US Treasury department has announced that it expects to conclude inter-governmental agreements on FATCA implementation with Guernsey, Ireland, Isle of Man and Jersey by year-end.
Moreover the US is actively engaged with other OFCs like the Cayman Islands, Singapore, Cyprus, Liechtenstein, Malta, Mauritius and Estonia to conclude such agreements with high hopes for successful outcomes before the New Year.
Further still the US Treasury is working to explore ‘options’ for inter-governmental engagement with other OFCs including Bermuda, the British Virgin Islands, Gibraltar, Luxembourg, the Seychelles and Sint Maarten.
FATCA was enacted by Congress in March 2010 and is intended to ensure that the US tax authorities obtain information on financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest, at Foreign Financial Institutions (FFIs) including banks, investment funds and insurance companies), foreign trusts and foreign corporations. Failure by an FFI to disclose information would result in a requirement to withhold 30% tax on US-source income.
To assist compliance by FFIs, the Treasury has published a model inter-governmental agreement for implementing FATCA and announced the development of a second model agreement. It is intended that these models should serve as the basis for concluding bilateral agreements with interested jurisdictions.
According to Treasury Assistant Secretary for Tax Policy Mark Mazur, “Global cooperation is critical to implementing FATCA in a way that is targeted and efficient and by working cooperatively with foreign governments and financial institutions; we are intensifying our ability to combat tax evasion while minimizing burdens on financial institutions.”
If this all sounds like the work of the G-20 backed OECD Global forum on Transparency and Exchange of Information for Tax Purposes both of which the US is an active member – there are some significant similarities with one important exception – the distinct lack of a multilateral approach.
The Treasury has published a model inter-governmental agreement for implementing FATCA to assist compliance by so-called FFIs, a model inter-governmental agreement for implementing FATCA and announced the development of a second model agreement.
It is intended that these models should serve as the basis for concluding bilateral agreements with interested jurisdictions.
With the plethora of bilateral negotiations on FATCA taking place with the US and OFCs, despite what OFCs may have learned in the past perhaps they are yet to grasp the value of harnessing the power of coordinated and collective action.
Certainly we will have to see what each OFC manages to negotiate with the US bilaterally but the scale of the disparity — if significant —may well raise important issues of competitive advantage (or disadvantage) amongst foreign financial institutions operating in OFCs and their ‘onshore’ counterparts.
Fore more on FATCA: