By: Roland S Tuitt, MBA, CPA
General
I have listened keenly to the honorable parliamentarian Mr. Leroy De Weever when he stated that the past government did not do anything relating to the FATCA. It seems that this good parliamentarian was living on another planet and just arrived on this beautiful island St. Maarten recently.
For your information it was under my supervision that the ministry of finance issued articles in the news media about the FATCA during the year 2013. I also gave a lecture on this topic at the University of St. Martin. Furthermore, I had a meeting with representatives of all the banks on the island and it was decided that the government would take the lead and enter into a government to government agreement with the USA.
However, you threw down the government for personal reasons and to date your present minister of finance has not done anything relating to the FATCA. The minister of Finance of St. Maarten did not sign any model intergovernmental agreement with the US government. This irresponsible act by the minister of Finance will have a devastating effect on the financial industry of St. Maarten.
To control the damage to the financial industry each financial institution on the island of St. Maarten will have to register to obtain a Global Intermediary Identification Number before April 25, 2014.
The Netherlands on the other hand signed their agreement on December 18, 2013.
Crucial Dates
Registration By Financial Institutions
January 1, 2014 Official opening date to register and obtain Global Intermediary Identification Number (GIIN)
April 25, 2014 Final day to register for guaranteed inclusion on first registered FFI list (to avoid withholding)
June 2, 2014 First Registered FFI list published- to be updated on a monthly basis.
Withholding By Withholding Agents
July 1, 2014 30% U S withholding tax will apply to payments of certain U S source income (e.g. dividends, interest, insurance premiums) made to non- U S financial institutions (FFI) unless FFI establishes by registration it is:
A participating FFI, including FFI’s in Model 2 IGA
An FFI in a jurisdiction with a Model 1 IGA treated as in effect, or
A low risk FFI.
FOREIGN ACCOUNT TAX COMPLAINCE ACT (FATCA)
The Foreign Account Tax Compliance Act (FATCA) is a United States act that requires United
States persons, including individuals who live outside the United States, to report their financial
accounts held outside of the United States, and requires foreign financial institutions to report to the
Internal Revenue Service (IRS) about their American clients. Congress enacted FATCA to make it more
difficult for U S taxpayers to hide assets held in offshore accounts and shell corporations and to increase
federal revenues.
FATCA requires foreigners to report information related to the ownership by U S persons of assets held overseas.
INTERGOVERNMENTAL AGREEMENTS (IGA)
The United States collaborated with other governments to develop two model intergovernmental agreements (IGAs) to implement FATCA.
All IGAs contemplate that a partner government will require all foreign financial institutions (FFIs) located in its jurisdiction (that are not otherwise exempt) to identify U S accounts and report information about U S accounts.
Both model I and model 2 IGAs can be implemented without having in effect a double tax convention or tax information exchange agreement with the United States.
IGAs with partner jurisdictions facilitate the effective and efficient implementation of FATCA. They remove domestic legal impediments to compliance. They reduce burdens on FFIs located in partner jurisdictions.
Conclusion
By not entering into an intergovernmental agreement with the US government, the minister of finance is causing all financial institutions to be non compliant and each financial transaction with St. Maarten will be subject to penalties of 30% and 40% of the gross transaction amounts.
FATCA requires financial institutions, such as banks, to enter into an agreement with the IRS to identify their U S account holders and to disclose the account holders’ names, TINs, addresses, and the accounts’ balances, receipts, and withdrawals. U S payors making payments to non-compliant foreign financial institutions are require to withhold 30% of the gross payments.
U S persons owning these foreign accounts or other specific financial assets must report them on a new form 8938 which is filed with the person’s U S tax returns if the accounts are generally worth more than US$ 50,000. Account holders would be subject to 40% penalty on understatements of income in an undisclosed foreign financial asset.
Recommendation
THE MINISTER OF FINANCE OF ST. MAARTEN MUST SIGN AN INTERGOVERNMENTAL AGREEMENT WITH THE U S GOVERNMENT PRIOR TO APRIL 25, 2014. IF NOT ALL FINANCIAL INSTITUTIONS WILL HAVE TO SIGN UP INDIVIDUALLY WITH THE IRS PRIOR TO THAT CRUCIAL DATE.
Sources: http://en.wikipedia.org/wiki/foreign_account_Tax_Compliance_Act
http://www.irs.gov/businesses/corporations/fatca-governments
http://www.irs.gov/businesses/corporations/summary-of-fatca-timelines