British efforts to banish tax evasion from offshore financial centres moved a step closer with the signing of the first tax treaty.
Dubbed son-of-FATCA, the British tax treaty network embraces former tax havens like the Channel Islands, Cayman Islands and British Virgin Islands.
These financial centres are all British Crown Territories or Dependencies.
Inspired by FATCA, the US Foreign Account Tax Compliance Act, the British financial jurisdiction network will see the automatic exchange of information between financial institutions and tax authorities.
The Isle of Man has already signed the first treaty – described as a huge step towards international tax transparency by Chancellor George Osborne.
Global standard
“We are closing in on anyone trying to hide the money and assets offshore,” he said.
“This treaty is part of an international agenda to make tax transparency clearer. The Isle of Man should be praised as the first financial centre to sign a treaty with Britain.”
The treaty ensures a two-way exchange of financial information between HM Revenue & Customs and the Manx tax authority revealing the income and assets of taxpayers in each jurisdiction to the other.
Similar agreements are also in the pipeline for other offshore financial centres, like Jersey and Guernsey.
On signing the treaty, Isle of Man chief minister Allan Bell said: “We want to show the world that the Isle of Man is a responsible financial centre.
“We are committed to joining a new global standard in the automatic exchange of financial information.”
Federal shutdown
The Isle of Man is also due to sign a FATCA treaty with the US – and would have done so already if the federal government had not closed the government for business.
Not only has the federal shutdown impacted on US government services, FATCA negotiations with around 50 nations have been suspended.
However, during the forced break, financiers across the world have started to realise the full extent of the law.
FATCA demands any financial institution with US taxpayers as clients must report details of their earnings and assets annually – providing they meet the $50,000 holding threshold. Failing to make the report leads to sanctions like withholding taxes in the US.
But US financial institutions are coming to realise FATCA also has implications for them, as they must identify and report financial information about their clients who are taxpayers of FATCA-compliant nations.
FATCA is due to start on January 2014, with further measures coming into effect from June 2014.
Actually, citizens of the Isle of Man are citizens of the Isle of Man, regardless if they have a US passport or not. The same is true for the Channel Islands, Cayman Islands and British Virgin Islands. FATCA attempt to ignore or reject the local nationality of an individual since the US enjoys profiting from the labers of individuals who do not live in the US.
Actually, it is worse than that. Through FATCA, US will enjoy profiting from the labours of individuals who not only do not live in the US, but whose only US connection is to be married to someone with a US birthplace.
My spouse is Canadian only, and earns all our household income where we live in Canada. I was born in US to Canadian born parents, but left USA as an infant never to return. My birthplace makes me a ‘US person’, and thus all accounts my husband and I own jointly are subject to FATCA reporting. Since, until recently, I have been unaware of USA’s unique to the world policy of requiring tax returns and FBARS from US born people who live and work outside USA, we can expect huge penalties on all our bank accounts (retirement savings, childrens university savings) that will effectively wipe us out. We are a middle income family with 3 teenage children. This is nothing short of thievery. For shame USA!
Whitekat, if you renounce US citizenship, won’t you be exempt?
Renunciation of US citizenship comes with a promise of having 5 years worth of tax compliancy. So, technically you can renounce anytime, but you are not off the hook for filing those 5 years prior to your renunciation date.