The Chief Executive Officer of Cayman Finance, the promotional agency for the islands’ financial services industry, Gonzalo Jalles has discussed the ramifications for the Cayman Islands’ banking sector of the United States’ Foreign Account Tax Compliance Act (FATCA), and has raised doubts about the likelihood that the regime will be replicated globally.
In comments to the The Cayman Islands Journal, Jalles explained that the Cayman Islands had agreed to enter into a Model 1 Intergovernmental Agreement with the United States due to its desire to rid itself of any association with facilitating the evasion of taxes. Jalles pointed out that the information disclosed under FATCA will be cross-referenced against individuals’ tax filings, and as such, “if anyone thought (incorrectly) a Cayman bank account could be used to hide taxes, it will most certainly now be absolutely impossible,” he said.
“We do not want anyone to use Cayman to evade taxes… we have demonstrated during the last years a consistent desire to help other countries enforce their tax laws.”
In a bid to dispel misconceptions that the Cayman financial industry is built around “some kind of secrecy or tax evasion structure,” Jalles said the Government is confident that increased transparency does not threaten the islands’ prosperity as an offshore financial center.
He underscored: “Our financial industry provides a tax-efficient structure for transactions. Tax-efficient,” he said, “is not a fancy word for tax evasion, but means each investor or investment pays the appropriate taxes in the place where the investor is based or the investment is made without creating a second layer of taxes.”
He did however urge persons with unpaid tax balances to be aware of the far-reaching scope of the United States’ FATCA, and if necessary seek professional advice. “FATCA means that US authorities will be receiving information of every account that has a US link,” Jalles pointed out. “This includes but is not limited to persons born in the US (even if they have never lived in the US), any account with a US address, any account with a US person as signatory, etc. In fact, if the financial intermediary has a suspicion of US indicia, it is forced to inquire with the customer and, if not satisfied, to report the account.”
“If you are an individual with any link to the US or any member of your immediate family does and you have not been filing US tax returns, you have some serious and expensive work to do. If you are a company that is not an intermediary, but you have a signatory, an address, operations, a director, a significant shareholder, etc with a US link, FATCA may affect you, seek advice,” he recommended.
According to Jalles, compliance with the United States’ FATCA, for Cayman, was inevitable. The other options available to the territory were simply not feasible he said; requiring Cayman financial institutions to sign up for the FATCA individually, or to pay a 30% withholding tax on any US-dollar denominated transactions.
Jalles believes however that the United States’ FATCA will not be rolled out by other advanced nations worldwide. He pointed out that the United States was in a unique position, leveraging the prevalent use of the US dollar, to compel territories to comply. The United Kingdom faces a greater challenge to achieve worldwide adoption of its initiative, he said, as UK Sterling plays a lesser role in international transactions.
“At the moment the UK has not attempted to force similar reporting from other countries; however, although the UK has a strong currency, it is not considered the world’s reserve currency, and if it were to try to implement FATCA legislation, it is likely some countries would not sign and many companies would choose to not use the pound sterling any more.” Similarly, it is unlikely other countries could implement the kind of reporting FATCA requires the way the US has done it, he said.
“It is clear the world is moving towards automatic exchange of information, but it is unlikely we will see a replication of FATCA on a country-by-country basis. I would expect the implementation of future proactive reporting initiatives would come as a consequence of multilateral negotiations,” he concluded.