Barbados moves closer to FATCA IGA with US

By added on 04/02/2014

Barbados is moving steadily towards an Inter-Governmental Agreement (IGA) with the United States to give effect to the Foreign Account Compliance Act (FATCA), reports the Barbados Advocate.

Under this US Federal law, banks, insurance companies and custodial institutions such as investment funds, will have to report to the US Internal Revenue service through the Commission of Inland Revenue information about financial accounts held by US taxpayers or by foreign companies in which US taxpayers hold a controlling interest.

The logistics of the initiative were highlighted by Minister of Industry Donville Inniss, Bank Secretary of the Central Bank Elson Gaskin and Commissioner of Inland Revenue, Sabina Walcott- Denny at a press conference held yesterday afternoon at the Ministry’s headquarters in the Baobab Tower Warrens.

Minister Inniss explained that countries refusing to comply, run the risk of causing their financial institutions to be subject to a 30 per cent withholding tax on both income and capital from US sources.

He stressed that FATCA should not affect Barbadians who are living, maintaining bank accounts and working here and who are not deemed to be US taxpayers. “However, the US Government and the IRS will perform a reciprocal exercise for Barbadian taxpayers who maintain accounts with US financial institutions.”

According to Gaskin, the timeline that the negotiation team has set for actually getting the IGA into place is April 30, 2014, while the deadline for signing is June 30. It was noted that Barbados will have at least until September 30, 2015 to ensure that all matters needed to operationalise FATCA, including the passage of legislation are in place.

The Bank secretary explained, “The threshold for bank accounts is US$100,000 on an aggregate basis. On the July 1, 2014 you will be subject to FATCA reporting. Or if you have an insurance contract with a Cash Surrender Value of at least US$500,000 you will also be subject to report. If you are under those thresholds those amounts don’t have to be reported,” he said.

He conceded that some concerns have been raised by financial institutions since it impacts on the common law principle of banker-client confiden-tiality, “but the fact is, this is a global movement towards disclosure in tax information matters. This is a direction that most countries in the world are going. So in order for Barbados to remain relevant we have to comply with this trend as well,” he said.

It was revealed that the Government will negotiate with the US to ensure that institutions like credit unions, pension funds, government entities and international institutions that present a low risk of US tax evasion are exempt from the provisions of FATCA under a special annex to the IGA.

Under this Model 1 agreement which will see financial institutions reporting this tax information to the Inland Revenue Department, Walcott-Denny said that while information is already exchanged between the two countries, the extension through the FATCA would mean there would be a need for more resources in order to carry out this arrangement efficiently. As it relates to who bears the cost, she said, “This has to be negotiated. The regular cost would be borne by Barbados but extraordinary costs; we should be able to negotiate on that.”

Minister Inniss also revealed that an action plan has been prepared and Government will be continue its preparatory work for FATCA implementation which includes matters such as public education, continued dialogue with the financial industry and a FATCA sensitisation seminar.

“In these actions, Government will continue to forge strategic alliances with various stakeholders to ensure that the transition to the FATCA regime is as smooth as possible.” He stated that the Central Bank of Barbados, the Financial Services Commission and Invest Barbados will be posting guidance and next steps for financial institutions and other entities that will be subject to FATCA requirements on their website.