Tuesday July 22, 2014
Madam Speaker it is now appropriate to address the Foreign Account Tax Compliance Act (or FATCA) pursuant to the British Virgin Islands having formally signed an intergovernmental agreement with the United States on the 30th of June 2014.
Madam Speaker, FATCA was enacted by the Government of the United States in 2010 as part of a process to ensure that US persons around the world fulfill their obligation to the US by reporting on, and remitting taxes where necessary on their worldwide earnings. Indeed all major countries including Europe Asia, Australia, as well as smaller ones such as the Channel Islands, Bermuda, and Cayman have signed this agreement.
FATCA places an obligation on Foreign Financial Institutions to report on the particulars of accounts owned by US Persons (including green card holders and US Companies) to the US Internal Revenue Service. Madam Speaker I must make it abundantly clear that FATCA does not place any additional obligation whatsoever on the US person or entity with respect to what they were obligated to do by virtue of their status as a US person.
There are currently many BVIslanders who purely by birth, who may have been unaware of their obligations as US citizens. Last year we began a public information programme on the impact of FATCA on such persons and what they must do in fulfilment of their obligations to the United States. In the coming days we will reinforce these messages and announce the measures that we are taking to assist BV Islanders who are also 'accidental' Americans as we often refer to them in coming up to speed on their commitments to the Internal Revenue Service. These measures Madam Speaker will include a help desk at the Government Administration Building.
Madam Speaker, so what exactly is the Foreign Account Tax Compliance Act.
On 18 March of 2010 the United States enacted Hiring Incentives to Restore Employment (or HIRE) Act, as an incentive to employers to hire previously unemployed persons by giving them payroll tax exemptions. Enacted by President Obama’s administration, the HIRE Act was designed to increase the level of employment in the United States and to combat money laundering and drug trafficking.
Madam Speaker, as part of this Act there were two components to it aimed at improving tax compliance of US persons holding assets overseas these are FBAR (report on Foreign Bank Accounts) and FATCA. The first of these to Foreign Bank and Financial Accounts requires a US citizen or green card holder to report if:
1. He or she is a United States “person” (which can include residents in the United States on a visa);
2. He or she had a “financial interest” in, or “signatory authority” over any “financial account” in a foreign county or jurisdiction; and
3. The total of all such foreign accounts exceeded $10,000 at any time in a given year.
The second of these components; FATCA, requires that:
• U.S. taxpayers report on certain foreign financial accounts and offshore assets
• foreign financial institutions report on financial accounts held by U.S. taxpayers or foreign entities to report instances in which U.S. taxpayers hold a substantial ownership interest
• The objective of FATCA is the reporting of foreign financial assets; withholding tax is the cost of not reporting.
Madam Speaker, in no instance does the HIRE Act and specifically FATCA require a foreign Government to report on the financial accounts of US persons within its borders, but it does require foreign institutions to do so. In the event that a foreign institution does not report on the accounts of US persons, a thirty percent (30%) withholding tax would be applied to the foreign institution whenever the US was able to apply such to the institution.
In order to avoid violation of domestic law in countries around the world, but reporting on accounts held domestically or to increase the comfort level of foreign institutions when reporting to the US authorities, the idea of the Intergovernmental Agreement was born. This agreement essentially allows the Government of the respective country to act as a facilitator, acting as an intermediary between the financial institution and the US Government. This arrangement in desirable to institutions since it requires them to report through the same channels with they are accustomed to reporting, and the information in relation to FATCA is merely passed on to the US Government.
The countries around the world as a matter of course have taken this route in order to reduce the effects of the requirements of FATCA.
Madam Speaker the Government of the Virgin Islands has signed a Model 1B intergovernmental agreement, which provides for information on US Accounts held in the BVI to be sent to the US. A copy of this agreement and it annexes are posted on the website of the Ministry of Finance.
Madam Speaker the IGA itself outlines.
1. the type of information that will be transmitted,
2. the time and manner in which the information will be transferred
3. the rules surrounding how the institutions in the BVI will be required to transfer the information and those of which will not have to transfer information,
4. rules regarding the confidentiality of the information and
5. how the BVI and the US will communicate on administrative procedures and enforcement.
Attached to this Madam Speaker are two Annexes.
Annex I speaks to the due diligence obligations for identifying and reporting on the requisite accounts to the US authorities and Annex II identifies the entities in the BVI that will be exempt from reporting. For example Madam Speaker, government institutions, international organizations, retirement funds and low value accounts (accounts less than 50,000.00) will be exempt from reporting under FATCA.
Madam Speaker, at the risk of repeating myself, FATCA does not put any new obligations on BVIslanders who in having dual nationality also have to report to the United States Tax Authorities. These obligations have always existed as part of the obligations of being a US person. However the BVI Government will, assist persons who consider themselves to need this support in meeting their reporting requirements to the US by providing useful advice and identifying professionals versed in US Tax matters to assist.
Madam Speaker, the Government of the Virgin Islands has not sold out its citizens as some would deliberately mislead you into believing, but instead has, by signing an Intergovernmental Agreement with the United States, improved the ability of financial institutions and relevant US citizens in the BVI to comply with this requirement.
Finally Madam Speaker I think that it is important that the implications of FATCA are understood by all in order that any uncertainties may be dispelled. Pursuant to this we have drafted a set of Guidance notes that will be used to clarify in great detail the various provisions of the FATCA IGA. During this week the Government of the Virgin Islands is hosting workshops to examine these documents with a view to finalizing them by the end of this month. In addition to this we will also be speaking to the public again in order that any remaining questions can be answered and the apparent mysteries surrounding FATCA dispelled. These discussions will be done through various media, including television and radio.