Nearly 20 percent of registrants with IRS from Cayman
Butterfield has announced that the bank completed its preparations to comply with the U.S. Foreign Account Tax Compliance Act in Bermuda and the Cayman Islands before the June 30 deadline.
FATCA is a U.S. tax-reporting initiative that forces financial institutions and certain nonfinancial entities worldwide to report bank accounts and ownership interests of U.S. taxpayers or face a 30 percent withholding tax on transactions with the United States.
As such, FATCA imposes due diligence, information reporting and control obligations on non-U.S. financial institutions.
Chairman and chief executive officer Brendan McDonagh said that since Bermuda and the Cayman Islands announced their intention to sign FATCA agreements with the United States some 14 months ago, Butterfield had devoted significant time and resources to developing an effective set of procedures and systems to enable the bank to be fully compliant with FATCA’s requirements.
In a statement released by Butterfield on Tuesday, Mr. McDonagh said, “Today, I am pleased to report that we now have in place the necessary elements to comply with the FATCA reporting and implementation agreements in Bermuda and the Cayman Islands effective as of the June 30 deadline. The implementation of FATCA is an important step in the ongoing process of improving transparency in international financial services centers, which will only serve to benefit our industry.”
The U.S. law is designed to flush out undeclared offshore bank accounts and other taxable investments of U.S. taxpayers.
“FATCA will provide an effective framework for our institutions and regulators to better interact with United States authorities and aid all parties in preventing improper account behavior and removing the barriers to identifying non-compliant account holders,” Mr. McDonagh said.
Bermuda and Cayman are following different paths in the implementation of the FATCA requirements.
The Cayman Islands government signed a FATCA Model 1 intergovernmental agreement in December 2013, whereas Bermuda opted for a Model 2 agreement. As a result, financial institutions in Cayman report the relevant data on U.S. taxpayers to the Cayman government rather than send it directly to the Internal Revenue Service. The government collects and transfers the records to the IRS instead.
Bermuda’s agreement with the U.S., in contrast, enables financial institutions in Bermuda to report information on accounts, equity and debt interests of U.S. taxpayers directly to the IRS.
Intergovernmental agreements were needed because the extraterritorial application of the U.S. contravened certain data privacy and confidentiality laws in other countries and would have left reporting institutions with the option of either breaking U.S. or domestic law.
“FATCA implementation is an important milestone for both Bermuda and Cayman. Butterfield has also encouraged further measures aimed at modernizing existing privacy laws to further enhance transparency in these jurisdictions and we would welcome the adoption of the necessary legislation to bring about those changes,” Mr. McDonagh said.
Regardless of the implementation method, foreign financial institutions that are subject to FATCA have to register with the IRS via a FATCA portal and obtain a Global Intermediary Identification Number.
A list of financial institutions registered with the IRS, released on July 1, shows that 17,207 financial institutions from Cayman had registered by June 26, a figure representing nearly 20 percent of all FATCA reporting institutions worldwide. Bermuda accounted for 1,579 out of a total of 87,992 institutions globally that have registered with the IRS so far.
Financial institutions in jurisdictions with a Model 2 agreement or no intergovernmental agreement have to start reporting 2014 data by March 31, 2015, whereas reporting institutions in Model 1 agreement jurisdictions have more time and are subject to a Sept. 30, 2015, reporting deadline.