A Foreign Account Tax Compliance Act (FATCA) awareness session organised by the Caribbean Association of Banks Inc. (CAB), in collaboration with PwC, was held on June 13 in Saint Lucia to highlight the Act’s implications for banks and other financial services institutions.
Since the enactment of FATCA in March 2010, the CAB has been very concerned about its implications for financial services institutions, corporations, individuals and the industry as a whole. As a result the CAB has taken steps to raise the awareness of the industry in that regard.
FATCA was featured as a topic at the CAB conference in 2011 and engendered much interest and discussion. The CAB has presented a position paper on FATCA to CARICOM and will be making a presentation on the subject at the CARICOM Council of Finance and Planning (COFAP) meeting on June 30, 2012, to be held in St Lucia.
The purpose of FATCA is to “detect, deter and discourage offshore tax evasion” by US citizens or residents and as a result establishes new reporting and withholding requirements on financial services providers in the region.
The awareness session attracted professionals from the banking, insurance, credit union, accounting and legal sectors as well as representatives from the public sector.
More than 70 participants attended the event, which was facilitated by Berkeley Greenidge, director – advisory services, PwC, Barbados. Greenidge detailed the legal obligations dictated by FATCA and highlighted the impact of such on our financial services organisations.
FATCA dictates that foreign financial institutions (FFI) will be obligated to enter into an agreement with the IRS (by January 2013) and identify and report on US customers and foreign corporations with substantial US ownership. Customers who refuse to assist with the compliance requirements will be viewed as “recalcitrant” and the FFI will have to deduct a 30% withholding tax on any withholdable payment credited to that customer’s account.
Greenidge assured the participants that, regarding preparation for compliance, we are late! He stressed that FATCA is more than just a tax issue and involves governance, compliance and process changes that will impact their entire organisations. Some implications highlighted are:
• Account opening procedures/due diligence
• Increased cost of resources associated with compliance
• Possible loss of correspondent banking relationships and its impact on the economy
• Possible loss of service providers
• Capital flight due to negative perception of an institution
• Reduced tax revenues from financial services sector
• Public concerns over privacy and confidentiality
Following on from their realization of the full impact of FATCA, participants raised many concerns as follows:
• Potential conflict with local privacy laws
• Impact of tax information exchange agreements and double taxation laws which may not exist in some countries
• Government’s role – there have been no public announcements/statements neither from the government nor the regulators
• Huge cost of compliance
• Changes required to systems, technology and processes before January 2013
• Individual expense that may be incurred if one is required to prove that they are not a US citizen, should they fall within any of the US person indicators.
• Responsibilities of support professionals such as auditors and lawyers