7 March 2011
With the clock winding down on the January 1, 2013 deadline to implement the US anti-tax evasion regulations in the Foreign Account Tax Compliance Act, known as FATCA, Cayman and other offshore banking jurisdictions face tough questions on handling US accounts and wire transfers.
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, says Tim McCarthy with RBC Wealth Management, who recently gave a guest lecture at the International College of the Cayman Islands business school.
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.
Implementing FATCA regulations means that offshore bankers will be having pointed 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.
McCarthy discusses the HIRE Act, FATCA and the implications for banks and their clients.
Photojournalist - ICCI Guest Lecture program: Shurna Robbins