Finance Minister Winston Jordan recently made an order to operationalise the government’s agreement to comply with the US Foreign Account Tax Compliance Act (FATCA).
Signed on October 17, 2016, the agreement formalises arrangements agreed to by the two governments in 2014. It provides for the sharing of income tax and other information from June 30, 2014, onwards.
The agreement, as published in the May 31, 2017 extraordinary edition of the Official Gazette where Jordan made the order, provides for the US government to collect information on accounts held in US financial institutions by Guyanese and share same with Guyana’s government, while receiving equivalent levels of exchange. The order states that it will come into operation upon written notification by the Guyana government to the United States government.
The agreement operationalises an intention to improve international tax compliance and provide for the implementation of FATCA based on domestic reporting and reciprocal automatic exchange pursuant to Tax Information Exchange Agreements (TIEA). Information shared is subject to the confidentiality and other protections provided for, including provisions limiting the use of the information under the TIEA.
In particular, the collection of this information is subject to the existence of appropriate safeguards and infrastructure for an effective exchange relationship. The existence of this infrastructure, according to the agreement, is to be judged by the other party.
Article 3 (8) explains that each competent authority (eg Internal Revenue Service [IRS]) shall inform the other authority (eg Guyana Revenue Authority) when it is satisfied that the jurisdiction of that authority (eg Guyana) has in place appropriate safeguards to ensure that information received shall remain confidential and be used solely for tax purposes as well as infrastructure for and effective exchange relationship.
The agreement also noted that “the government of the United States acknowledges the need to achieve equivalent levels of reciprocal automatic information exchange with Guyana.”
As a result, it commits to “further improve transparency and enhance the exchange relationship with Guyana by pursuing the adoption of regulations and advocating and supporting relevant legislation to achieve such equivalent levels of reciprocal automatic information exchange.”
It specifies that the exchange obligation shall see the amount and characterisation of payments made with respect to a US Reportable Account determined in accordance with the principles of the tax laws of Guyana and the amount and characterisation of payments made with respect to a Guyana Reportable Account may be determined in accordance with principles of US federal income tax law.
FATCA was enacted by the US in March, 2010, as a mechanism designed to reduce the level of tax evasion which currently exists among holders of foreign accounts. It seeks to ensure that United States citizens disclose their overseas accounts and pay applicable taxes on US-sourced income invested overseas.
FATCA generally requires a foreign financial institution (FFI) to enter into an agreement with the US IRS to report information about certain accounts held by the US, citizens or foreign entities owned by US persons.
An FFI that does not enter into an agreement with the IRS is subject to a 30 percent withholding tax on certain payments, including US-sourced interest and dividends, and gross proceeds from sales of US securities.
Governments have two options for complying with FATCA: they can either permit their FFIs to enter into agreements with the IRS or they can, themselves, enter into inter-governmental agreements (IGAs) with the US.
In February of this year, the Caribbean Association of Banks (CAB) urged Caribbean countries to enact the necessary legislation for the implementation of FATCA. “Failure to do so has far-reaching implications for banks in terms of an increase in sovereign risk and its impact on their ability to conduct business,” the CAB said in a statement.
The other countries listed by the CAB as having IGAs are the Bahamas, Cayman Islands, St Lucia, Barbados, Curacao, St Vincent and the Grenadines, Bermuda, Jamaica, Turks and Caicos Islands, British Virgin Islands and St Kitts and Nevis.
The CAB had also noted that where countries in the region do not have IGAs in force with the US, domestic financial institutions in those territories will have to establish individual agreements with the US government at significant costs, which may have to be passed on to their customers. They, therefore, encouraged the remaining Caribbean countries to ensure that their IGAs are in force by their extended deadlines in order to avoid the negative consequences of non-compliance with FATCA.