By Caribbean News Now contributor
WASHINGTON, USA -- The governments of the British Virgin Islands and Grenada have both taken additional steps towards cooperating with the United States in relation to that country’s Foreign Account Tax Compliance Act (FATCA).
On Monday, BVI Premier Dr Orlando Smith signed a Model 1B intergovernmental agreement (IGA) at the Department of Treasury in Washington, DC.
Smith said, “The formal signing of the IGA is the final step in this phase of FATCA implementation. This signing allows financial institutions organised in the Virgin Islands to prepare for the implementation of FATCA on the basis that there will be an effective IGA in place by January 1, 2015.”
According to BVI Financial Secretary Neil Smith, a key benefit of the IGA is that the territory’s financial institutions have until the end of 2014 to obtain a global intermediary identification number (GIIN).
The next phase of implementation will be the creation and issuance of guidance notes that assist financial institutions and other parties in the territory in determining their requirements under the IGA.
The BVI government will issue a draft of the territory’s guidance notes for industry comment.
Members of the financial services industry and the public will have a number of opportunities to provide feedback on the guidance notes. This includes participation in a series of workshops that will be undertaken for the financial services industry and facilitated by KPMG (BVI) Limited.
The financial secretary explained, “The aim is that -- with industry and specialist input -- the guidance notes will adequately address any BVI-specific situations with sufficient clarity that the requirements of the IGA can be understood and performed.”
He added, “The guidance notes will then be updated and amended as required before being issued in final. In addition, legislation enabling the implementation of the IGA and guidance notes will be enacted, paving the way for compliance.”
The infrastructure required to enable the BVI government to receive, collate and pass on information submitted to it by financial institutions is currently being put in place in readiness for the first reporting date.
On April 4, 2013, the BVI government announced that it would enter into negotiations with the US government with the objective of finalising a Model 1B IGA in relation to the US FATCA.
Meanwhile, on June 16, 2014, the government of Grenada successfully completed the negotiation of a Model 1 IGA to enable FATCA compliance. This model requires financial institutions to submit customer information to the Inland Revenue Department for onward submission to the US Internal Revenue Service (IRS).
Grenada intends to pass the “Foreign Account Tax Compliance (United States) Implementation and Enforcement Bill”, to provide for the legal submission of customer information for the purposes of FATCA.
Failure of a financial institution to submit information could result in a 30% withholding tax levied on specific income originating from sources in the US and may result in the potential loss of correspondent banking relationships.
The Grenada government said it is committed to ensuring that the required structures are in place to facilitate the requirements of FATCA while preventing the imposition of the withholding tax on the local financial institutions.
The US government enacted FATCA on March 18, 2010, to combat tax evasion by specified US citizens holding investments in accounts outside of the United States, specifically as it relates to US-sourced income. FATCA requires foreign financial institutions (FFIs) to report to the IRS, information on assets of US$50,000 or more held by US taxpayers, or by foreign entities in which US taxpayers hold substantial ownership interest.