(Jamaica Gleaner) Allison Peart, managing partner at Ernst & Young Jamaica, said it is in the interest of banks and their customers to start preparing the paperwork required under Foreign Account Tax Compliance Act (FATCA), which takes effect next January.
Peart said that even individuals who are non-US residents, but transact business through courier companies that assign US contact information to customers, will be required to disclose their activity.
Such persons would be required to fill out a Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding form, known as the W-8BEN, to prove their non-American status.
All green-card holders, and persons born in the US, are US persons and are, therefore, subject to the FATCA-reporting requirement. A US person would need to submit the W9 form.
“If you are a US person, wherever in the world you pick up yourself and go, you are still subject to US taxes, and FATCA is here to make sure of that,” said Peart, who was speaking at a June 28 forum on the law arranged by First Global Financial Services.
“So if you have a Mailpac account with a US address or a US telephone number, my advice is you fill out a W8 form to prove that you are not a US person. If you don’t, then question marks are going to arise.”
FATCA requires banks to report to the US Inland Revenue Service all accounts belonging to US persons that have a balance of at least US$50,000 or its equivalent. The law is meant to reduce tax evasion.
Banks, by law, cannot supply customer information to third parties.
However, Peart said FATCA changes that dynamic.
“What FATCA has done is get the banks off the hook by allowing them to be able to provide the information to a third party without asking the customer’s permission, providing the information is now a requirement of the banks,” she said.
It requires a careful screening of Know Your Customer and Anti-Money Laundering – KYC/AML – policies, she said.
Other implications
It is not mandatory for banks to sign to the FATCA agreement, but if they do not then there are other implications for their businesses.
“What the IRS says is that if you do not sign this agreement, then if you earn interest in the US – and to the extent you are collecting interest from the US – we will hold back 30 per cent of that income,” Peart said.
Additionally, Peart explained that holders of joint accounts will each be subject to tax on the entire balance of the accounts in their names.
“The banks will have its work cut out for them to determine which accounts are to be reported on. Banks will have to improve their KYC policies as they will need to be able to identify the accounts that are to be reported on, especially accounts that belong to owners with high net worth,” she said
Jamaica’s minister of finance, Peter Phillips, has advised the banks and other financial institutions, including credit unions, to get ready for FATCA’s implication.
Peart said despite complaints worldwide, the law is unlikely to be reversed.
In the meantime, countries such as France, Italy, Germany and, recently, Japan have proposed an inter-governmental agreement which seeks to amend the FATCA agreement to be binding between governments and the IRS, rather than banks and the IRS. In return, the US government will provide similar information to those countries.
“Can you imagine if all countries were asking for this information, then the banks would have to check for indicia for everybody. Can you imagine if every country decides that they want it this way?” Peart said.
“If you are a US bank, you will need to have systems in place to tell the government in, say, Germany what German persons are doing in their accounts. The same applies for Canadians, Jamaicans, everybody.”
She explained that banks have the liberty of closing a customer account if the customer is not willing to provide the required information to determine if they are a US person or not.
