Caribbean banks prepare to confront a new U.S. law that requires Caribbean Americans and other citizens who have foreign or so-called offshore bank accounts with more than $50, 000 to report it to the IRS. New laws due to take effect next year would force the local banks to report their dollar balances and other highly personal information to the Internal Revenue Service (IRS) in a move U.S. officials say would severely minimize tax evasion.
The new regulations under the Foreign Accounts Tax Compliance Act come into force from the beginning of January and it is already causing major headaches among governments, bankers and financial regulators as some of the U.S. clauses will clearly affect member states of the Caribbean trade bloc of nations.
So commercial and central bankers have formed a task force to examine the implications of the law and to what extent they could force managers to comply with the law without running into conflict with various country constitutions.
The task force has already held some meetings among itself but more importantly, and this were preparing for a major teleconference with the Caricom Secretariat as it takes the issue up the ladder chain and eventually to prime ministers and presidents in the coming months.
The law was passed by the U.S. Congress back in the spring of 2010 but lawmakers delayed its implementation until January to give enough lead time for compliance.
The new regulation also applies to green card holders or legal permanent residents and there is a clause as well, relating to similar demands for information from banks expected to yield up personal information about persons with visitors visas, once they habitually spend two or more months in the U.S.
“Since the announcement by the U.S. of the enactment of FATCA, the Caribbean Association of Bankers (CAB) has been very concerned about the implications for financial services institutions in the Caribbean and the resultant impact on the economies of the region as a whole,” said Carlton Barclay, chairman of the CAB organizing committee.
Gobind Ganga, deputy Central Bank governor of Guyana says the issue is engaging the attention of banks region-wide and requires a thorough review of the legislation to ensure no humps in compliance along the way, but he added:”We need a unified position to move forward with.”
Leaders raised the issue with President Obama at the hemispheric summit in Colombia earlier this year but there has been little movement so far and no one expects any, given the national distraction that comes with preparations for elections next month.
Of particular importance to future victims of this law is a paragraph stating that failure of foreign banks anywhere in the world to report information to the IRS will result in up to a 30 percent withholding tax on all U.S.-sourced payments that include payments such as Microsoft dividends, U.S. bonds or maturing interests from an American corporation.
The law applies to a wide range of financial institutions ranging from brokerage firms to insurance companies, trust firms, retirement administrators, mutual fund companies and others.