Tough questions to be asked on FATCA, says expert

| 07/03/2011

(CNS): New rules in the United States will have a significant impact on the offshore industry, Tim McCarthy, an expert with RBC Wealth Management, revealed in a recentexecutive lecture at the International College of the Cayman Islands business school. Although the Foreign Account Tax Compliance Act, known as FATCA, does not come into effect until 2013, Cayman and other offshore banking jurisdictions face tough questions on handling US accounts and wire transfers, the professional told his audience recently.

Implementing FATCA regulations means that offshore bankers will be having conversations with their US clients about declaring their foreign assets or in some cases giving up US citizenship or green card status. Other offshore bankers are choosing to no longer deal with US clients.

Connected to the US HIRE Act, signed by President Obama last year to encourage businesses to hire new workers, the FATCA portion of the new law will have wide ranging impact on foreign banks. All wire transfers around the world using US currency must pass through a US bank regardless of the starting country or final destination. Once the wire passes through the American bank, the US Internal Revenue Service effectively has control on how that transfer will be treated for tax purposes.

If the foreign bank agrees to provide account details on its US or green card holding clients, the wire will pass through with a transaction fee. But if the foreign bank does not comply with FATCA provisions, all wire transfers going through US banks will have 30 percent automatically withheld as tax.

Industry leaders in the UK recently said it could cost millions of dollars to comply with the new US regulations describing it as "nightmare" and have suggested that some smaller operators may pull out of the US rather than pay a high price to comply with the act.

More details of the act are expected this summer but the global financial industry is expecting the act to make a significant impact. Tom Aston, a tax partner at "big four" accountancy firm KPMG recently told the UK press that banks there have gone through the “process of anger and denial” but realise they have to deal with it.

"Pulling out of America could be a knee-jerk reaction from smaller players, and I know a lot of them are looking closely at what FATCA will mean for them. This is a big burden for the banks on top of all the other new regulations and requirements being imposed on them after the financial crisis," Aston added.

He also warned that if the US receives a large increase in tax revenue following the enforcement of the FATCA then other jurisdictions, including the EU, may follow suit.


See video interview with McCarthy

 

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Comments (3)

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  1. Hmm says:

    Why dont we just go back to the days of smuggling cash in and out of the USA.

    • anonymous says:

      TERROR CONSPIRACY Deception and the loss of Liberty. Thats waht it is.

  2. Jingo Jango says:

     It is RBC, not RBS…