Leading offshore financial centres the Isle of Man, Jersey and Guernsey have all signed Foreign Account Tax Compliance Act (FATCA) agreements with the US.
In a simultaneous signing, the three financial centres threw off the mantle of trading as secretive tax havens and will pass financial information about US citizens with bank accounts and investments to the US Internal Revenue Service (IRS).
Britain was the first nation to sign a FATCA agreement with the States earlier in the year, and has encouraged crown dependencies and overseas territories to sign a similar deal with the UK government.
Guernsey’s chief minister, Peter Harwood said: “Guernsey has committed to exchanging tax information since 2002. Now, we have enhanced those arrangements, and in doing so improved our reputation and position on tax transparency.”
Financial firms on all three islands have criticised FATCA for adding unnecessary and costly red-tape to international financial trading, but have had no choice but to join the network.
Financial certainty
Remaining outside means restricting trade with US banks and financial institutions, who would be required to deduct a 30% withholding tax on all financial transactions with non-FATCA registered financial firms.
Michael Betley, executive group chairman of Trust Corporation based in Guernsey, believes joining FATCA brings certainty to the financial services industry.
Betley, whose business has a number of US clients, said FATCA was “enormously distracting and costly for industry” and an unwelcome burden of doing international business.
“It is a relief that we have finally signed the agreement after many months of waiting. It has been a hard slog but at least we can now plan with a greater degree of certainty,” he said.
Jersey, Guernsey and the Isle of Man now become members of a tax network spanning more than 50 financial jurisdictions worldwide.
How FATCA works
Key nations already in the fold include Britain, France, Germany, Spain, Italy, Switzerland and Japan.
Russia has recently indicated that the nation will join FATCA, as will the Asia Pacific financial centres of Hong Kong and Singapore.
FATCA is due to start in earnest from July 2014.
Under the law, 6 million US expats and millions more taxpayers in the States will have to declare any foreign bank accounts or holdings worth more than $50,000.
Under FATCA, foreign financial firms will report the financial details of any US clients meeting these criteria to the IRS, which will cross-reference the data against tax returns to ensure taxpayers, are paying tax on their offshore earnings.
