Basseterre, St.Kitts (September 15th 2015):- St Kitts and Nevis signed an agreement with the United States to implement the US Foreign Account Tax Compliance Act.
The act, which was enacted by Congress in 2010, requires foreign banks to report to the US Internal Revenue Service information about financial accounts held by US tax payers or by foreign entities in which US taxpayers hold a substantial ownership interest.
The Federation under the leadership of Former Prime Minister Dr. Denzil Douglas committed to the enactment of the ACT since 2014. In a 2014 Budget Presentation former PM Douglas said that that in March 2010, the United States passed the Foreign Account Tax Compliance Act (FATCA) that it had far-reaching effects, well beyond the shores of the USA.
He said FATCA was enacted by the USA as a means of combating tax evasion by ensuring that the US Internal Revenue Service (IRS) could obtain information on Americans who may be investing and earning income through non-US institutions. Such income is taxable by the USA.
FATCA requires financial institutions outside of the USA to report to the IRS any tax-relevant information on US citizens who have assets of US$50,000 or more in their institutions.
Prime Minister Douglas said that in the context of St Kitts and Nevis, such institutions would include entities that accept deposits in the ordinary course of banking or similar business such as commercial banks, credit unions and insurance companies.
“If these institutions do not submit the required information, a 30 per cent withholding tax may be levied on certain payments and, in the case of the banks, they run the risk of losing their correspondent banking relationships – a situation that would cripple the operations of our banks and quite possibly cripple our ability to freely conduct business with the rest of the world. Mr Speaker, these institutions really have no option but to comply,” Douglas said.
He said his Administration has recognised the challenges confronting the financial institutions as they would have had to revisit their customer acceptance, account openings and due diligence procedures and undoubtedly incur some expense to change their reporting and data management systems.
“Changes will also have to be made to the legal framework to allow the affected financial institutions to pass on the required information. It is for this reason, Mr Speaker, that my Government will bring to this Honourable House a Bill entitled Foreign Account Tax Compliance (United States of America) (Implementation and Enforcement of Inter-Governmental Agreement) for safe passage,” Douglas said.
The Former Prime Minister Douglas who was booted out of office in February of this year, added that the Bill had been drafted by the Legal Sub-Committee of the ECCU Working Group on FATCA, a group that was initiated by the ECCB to treat with the compliance of financial institutions that are licensed in the ECCU territories.
“In the meantime, my Government took the opportunity to come to an agreement, in substance, with the USA on an Inter-Governmental Agreement.
“We expect to sign this agreement in the very near future,” he said. “The agreement will facilitate the transfer of the required information by the relevant financial institutions to the designated Government Competent Authority.
“The Competent Authority would then submit the information to the US IRS on behalf of the financial institutions. The introduction of FATCA means that the Government will therefore have to incur costs to develop the capacity to send this information in a manner that ensures confidentiality. This will include the acquisition and maintenance of software to facilitate the transfer of information in the specified format and the training of staff,” then PM Douglas told legislators.