Tax seminars to be held to aid in transition
A Cayman Islands delegation met with representatives of the US Internal Revenue Service on Wednesday to discuss the implementation of the Foreign Account Tax Compliance Act.
Premier McKeeva Bush led the Cayman delegation in meetings with IRS Deputy Commissioner (International) Michael Danilack and senior officials in the US Treasury Department.
The meeting took place in response to a letter from the Cayman Islands Government that outlined concerns about the required implementation of the tax act’s provisions. The IRS then invited representatives from the Cayman Islands Government and the financial services industry to Washington in order to hold further discussions.
Mr. Bush said Thursday that the meeting was “a fact-finding mission in order to gain a clearer understanding of the intentions and implications of FATCA”.
“Our pro-active approach was well received and we were able to share our viewpoints and some suggestions we have,” he said. “While it was made very clear to us by the IRS/US Treasury officials that this is not a matter which singles out the Cayman Islands, this is a matter which will impact institutions and practitioners, as well as individuals who are American citizens residing outside of the United States.”
The Foreign Account Tax Compliance Act was enacted in March 2010 as part of the Hiring Incentives to Restore Employment – or HIRE – Act. Under FATCA, US citizens and taxpayers holding financial assets outside the United States must report those assets to the IRS on a new form attached to their tax return. Reporting is required for taxable years beginning 1 January 2011 and penalties apply for failure to comply.
In addition, FATCA will require foreign financial institutions to report directly to the IRS certain information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest, or to face paying a 30 per cent withholding tax on payments made from US financial institutions to foreign financial institutions after 1 January, 2013. Non-US banks, trusts and investment funds are all included in the definition of foreign financial institution.
In order to avoid the withholding tax, foreign financial institutions will have to enter into an agreement with the IRS to, among other things, identify US account holders and report information about US accounts to the IRS on an annual basis. Should account holders fail to comply with the identification process, the financial institution will have to withhold 30 per cent of deposits made to the account holders and close their accounts. Mr. Bush said those they were meeting with recognised Cayman’s “strong history of cooperation and leadership in implementing tax information assistance to the United States”. He further indicated that cooperation would continue. “[W]e assured them that we would be seeking to ensure full compliance with FATCA once this comes into effect.”
To help provide clarity about the tax act to promote compliance, Mr. Bush said the government would offer a tax seminar in mid-April.
“We recognise that there are many questions about US taxes and we believe that our Government can assist by facilitating a tax seminar that educates those living and working in the Cayman Islands,” he said.
Speakers at the seminar will include representatives from Sidley Austin LLP, the Cayman Islands’ legal representatives in Washington DC, which assisted in arranging Wednesday’s meetings. “The access to key US Government officials, expertise on US legislative policy and advice to local people about US taxes are prime examples of the tremendous benefits the Cayman Islands are receiving from our international representatives,” Mr. Bush said.
While in Washington on Wednesday, the Cayman government representatives also met with senior Republican and Democratic staff from the Senate Committee on Finance, as well as the Senate Permanent Subcommittee on Investigations.
“It is always important to demonstrate that the Cayman Islands is a transparent jurisdiction and to draw US policymakers’ attention to the growing list of acknowledgements, endorsements and achievements, which we have received from various international organizations, regulatory bodies, and even US Government Agencies,” Mr. Bush said. “These meetings have achieved much and we will be seeking to build upon the momentum we gained from this visit to Washington, DC with follow-up visits.”
The Cayman Islands’ delegation included Attorney General Samuel Bulgin; Cayman Islands Monetary Authority Chairman George McCarthy; Ernst & Young Regional Managing Partner Dan Scott; Financial Services Deputy Chief Officer Samuel Rose; Senior Political Assistant Richard Parchment, as well as representatives from Sidley Austin LLP.