(Trinidad Guardian) T&T will sign an inter-governmental agreement (IGA) with the United States Internal Revenue Service (IRS) on December 31, the Central Bank has said. In its most recent Financial Stability Report released October 16, covering up to June, the Central Bank said that this will happen as T&T and other Caribbean countries move to comply with the US’ Foreign Account Tax Compliance Act (FATCA).
FATCA, a US tax law which came into effect in January, was designed and enacted to combat offshore tax evasion by “US persons” with accounts and/or investments with both foreign financial and non-financial entities. FATCA places a requirement on foreign financial institutions (FFIs) to identify and report information on certain “US persons” invested in accounts outside of the US and for certain non-US entities to provide information about any US owners to the IRS.
A “US person” under FATCA refers to a citizen or resident of the United States of America, a US partnership or corporation. FFIs include, but are not limited to, commercial banks, non-bank financial institutions, asset managers, investment products and insurance companies where products have an investment element, the Central Bank explained.
“It is expected that FATCA may impact both financial and non-financial companies in Trinidad and Tobago that receive income from a US source, either directly in the conduct of their business, or indirectly through relationships with other financial institutions. Non-compliance carries significant implications for local financial institutions,” the Central Bank said. To comply with the FATCA requirements, T&T must resolve some issues.
First, “conflicts with local laws which prohibit the disclosure of confidential information.” The bank explained that “currently, local disclosure laws prevent local institutions from sharing confidential client information. Consequently pertinent legislation would have to be amended or enacted to ensure compliance with FATCA requirements.”
Second, there are “implications for institutions with cross-border activities” regarding the choice of model IGA adopted. Two of the largest indigenous banks in T&T, First Citizens and Republic Bank Ltd own banks outside of T&T. “If an FFI maintains branches outside of one jurisdiction, then such branches would not be covered by the IGA signed in the head office jurisdiction. Consequently, FFIs must be cognisant of the IGA adopted in each jurisdiction where they have operations, in order to ensure compliance,” the report said.
Third, “technology limitations” means that “compliance with FATCA requires the installation of new and extended information systems to enable local institutions to fulfill the reporting requirements.” The regulator of banks in T&T said it is adopting a “regional approach to the FATCA regulations.” T&T is a member of a Regional Task Force created by the Caribbean Community’s Council of Finance and Planning under the auspices of the Caribbean Association of Banks.
“The task force is working towards a regional approach with regard to FATCA compliance in areas which allow for a regional approach. With regard to specific country-to-country negotiations with the US, some islands including Trinidad and Tobago have begun the process of negotiating IGAs with the IRS,” the report said.