Act goes after tax evasion
An act signed into law by US President Barack Obama in March contains numerous provisions designed to
tackle offshore tax evasion by US residents. The measures will specifically affect
non-US financial institutions and their US customers.
The Hiring Incentives to Restore
Employment Act mainly contains tax provisions to stimulate employment. However,
it also prescribes that from 2013 US
income from interest, dividends, wages, royalties, the
sale of shares, bonds or other investments paid to foreign financial institutions
will be subject to a 30 per cent withholding tax, unless the financial institution that receives
the payment reports information on its US account holders to the IRS.
order to avoid the withholding tax, foreign financial institutions, such as
banks, brokerages or investment funds, have to enter into a cooperation
agreement with the IRS.
the agreement the financial institution will have to report information on all
of its US account holders and to withhold tax on payments deposited in accounts
of US citizens, if the owner refuses to disclose the requested information.
foreign financial institution has to report the identity of all US account
holders, including name, address, tax identification number, account number,
account balance and value as well as the gross receipts and payments for each
US account. The HIRE Act defines US accounts as those accounts maintained by US
citizens and US-owned foreign entities.In Cayman the rules will apply to all people who have US citizenship, including those with
For foreign financial institutions
the new rules on reporting payments will mean extensive changes to systems and
If US income payments are made to non-financial foreign entities the withholding tax can be
avoided if the entity certifies that no US citizen has more than 10 per cent
ownership of the entity.
The HIRE Act
also demands that from 2011 US citizens who own foreign assets exceeding an aggregate value of
US$50,000 must disclose information on their assets and income on their federal
income tax returns to the IRS. The failure to disclose the information could
result in penalties of up to $50,000.
measures come in addition to the Foreign Bank and Financial Account reporting
requirements. FBAR filings will have to be made separately to the US Treasury Department.
The new reporting
is required for all tax years beginning after 18 March 2010.
It is expected
that the IRS will provide guidance and more details on how the filing requirement
may be complied with.
The new rules also impact the
income tax treatment of US tax payers who have directly or indirectly
transferred property to a foreign trust. The Act imposes the presumption that the trust
is deemed to have a US beneficiary, unless the US transferor submits
information to the IRS confirming that no portion of the income or assets of
the trust may be paid to a US citizen during the tax year.
At the Cayman Finance Summit on 6
May, 2010, guest speaker Steven Cantor will provide a full brief of the new law
and how it will affect US citizens in Cayman.
To register for the
Summit log on to www.caymanfinancesummit.ky
or call 623 6700.