Laws aimed at lifting the veil of secrecy for offshore tax havens has steamrollered another two major financial centres into signing up.
The Foreign Account Tax Compliance Act (FATCA) is an American law which compels foreign financial institutions to reveal details of their US taxpaying clients.
Their assets must be worth more than $50,000 and the deadline for compliance is January next year.
Failure to register with the US tax authorities in time will see a hefty 30% withholding charge being imposed on all transactions between the institute and the US.
There is a problem with most countries not wanting their banks to contravene domestic laws such as data protection and privacy which is why the US brought in new intergovernmental agreements (IGAs) to deal with this situation.
The UK and Switzerland were among the first to sign up and now the British Virgin Islands and the Cayman Islands have pledged to give up their secrets.
Their agreement covers all banks and financial institutions as well as hedge and private equity funds.
In addition, the Caymans and the British Virgin Islands have also agreed to sign up with the British version of FATCA – a decision which comes close on the heels of Jersey and Guernsey agreeing to terms.
It is understood that the Caymans and the British Virgin Islands have agreed to an IGA which doesn’t allow for the reciprocal agreement of US authorities handing over information on foreign account holders with American banks.
News that the two financial centres were due to sign has not come as a surprise and now arrangements are in place for the information to be handed over at a government level.
Praise for Caymans
This isn’t the first agreement which sees the two havens hand over information – there is already a tax information sharing agreement with the US in place and they have both also implemented the European Union Savings Tax Directive.
Meanwhile, a major report from the Organisation of Economic Co-operation and Development (OECD) has given the thumbs-up to the way the Cayman Islands conducts financial transactions.
Cayman Finance, the body responsible for promoting the islands’ financial services, welcomed the report which, it said, showed that its financial industry met international standards.
Gonzalo Jalles, of Cayman Finance, said: “When we make a commitment as a jurisdiction, we pursue our obligations to ensure we remain one of the most highly regulated jurisdictions in the world.”
The OECD report also noted that international standards for tax sharing information and transparency had been properly implemented and there is an effective exchange of tax information in place.