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Foreign Financial Centers Avoiding FATCA Spotlight

Article Summary:

Panama is a leading example for many foreign government and financial centers which see the Foreign Accounts Tax Compliance Act as a wall in the path to good business practices; causing more countries to see FATCA as a major headache for themselves.

Photo Credit: iExpat

Original Article Text From iexpats:

Financial Centers Shy from FATCA Spotlight

FATCA – the Foreign Accounts Tax Compliance Act – is a major headache for financial centres without the legal infrastructure.

The law is targeted at pressuring US taxpayers to declare their overseas earnings and assets to the US Internal Revenue Service – but the new law that starts to phase in from January 1, 2013 is starting to impact on foreign financial institutions and governments as well.

The rules demand that foreign financial institutions (FFI) report their dealings with US taxpayers to the IRS or face a 30% withholding tax on any assets the FFI holds in the US.

The carrot and stick approach is designed to make FFIs toe the line and deliver the goods to the IRS on their US customers.

This is all well and good from the US perspective, as the Treasury expects to see more tax dollars come in as a result.

Little incentive to comply
From outside the US, bigger countries with a well-developed economic infrastructure can deal with the increased reporting burdens.

The UK has already signed a reciprocal agreement with Washington and will deliver the required information – and in return receive financial data back about British taxpayers with assets and incomes in the USA.
The trouble comes for less mature banking economies like Panama and the Bahamas.

They don’t have the infrastructure to cope with FATCA. The Bahamas has no tax authority because the government does not levy income tax, Panama has little incentive to swop tax data as income earned abroad is exempt from tax.

“The Panamanian government already concluded some tax information exchange agreements but the regulatory framework is rudimentary at best. There are also many legal and constitutional questions regarding such agreements that remain unanswered,” said Adriaan Struijk of corporate service consultancy The Freemont Group.

Dancing to US requests
“So far Panama has not exchanged any information based on these treaties and politicians are keen on delaying implementation until the elections of 2014. Panama leans on financial services for more than 70% of her exports and dancing to US requests is not a popular tune here”

The aim is for FATCA to put the squeeze on financial centres sheltering earnings and assets that would otherwise attract tax in the US.

Clearly, FATCA will become a worldwide network of financial data transfers between tax authorities lifting the veil some governments place on their nation’s banking activities. Switzerland, Liechtenstein, Jersey, Guernsey and the Isle of Man are all about to open their books to tax collectors in other countries.

The likely inference is taxpayers resident in one country who have no good reason to keep their assets and earnings in another will find themselves tied up in FATCA, facing fines and other penalties.

In many countries, US expats are reporting difficulties in opening bank accounts to handle their day-to-day spending because the FFI has a policy of closing the door on American customers and their dollars.

Link to Original Article:

From iexpats

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