Home' Trinidad and Tobago Guardian : August 18th 2016 Contents BG18 COMMENTARY
BUSINESS GUARDIAN www.guardian.co.tt AUGUST 18 • 2016
BackgroundOver the past few years there
has been significant dialogue
within the local, regional and
industry surrounding the
intricacies and complexities
of the US law enacted in March of 2010 called
FATCA, the Foreign Account Tax Compliance
Act. It would appear that the primary intent
of FATCA is to gain information about US
persons who may be investing and earning
income through non-US institutions and to
have that information reported to the Internal
Revenue Service (IRS). This all ties into the
global drive for tax transparency and issues
surrounding tax avoidance and evasion.
As stated earlier, FATCA is a US law, so the
question arises, how is the US Government
going to leverage its local legislation to address
what is essentially an extra-jurisdictional issue?
Not surprisingly, the US decided to use its
economic might. They co-opted the co-oper-
ation of foreign financial institutions (FFIs)
and governments by introducing a sanction
for non-compliance. FFIs that do not comply
with the provisions of the FATCA will incur
a 30 per cent penalty on certain source income
derived from US investments. Those provisions
impose certain withholding, documentation,
and reporting requirements on the FFI.
In order to avoid the 30 per cent penalty
on the US source income (eg interest, dividends,
royalties etc), an FFI would have to enter into
an agreement with the IRS and implement
i. Identify and document US persons and
accounts on their customer database;
ii. Report certain information to the IRS
regarding those US accounts; and
iii. Impose a 30 per cent tax on certain pay-
ments to their customers who are also FFIs,
but who have not entered into an agreement
with the IRS (non-participating FFI) and also,
their recalcitrant customers. (A customer who
fails to provide the information required to
determine whether the account is a US
To improve the process of international tax
compliance and assist with the implementation
of the FATCA, the US Government introduced
the Inter-Governmental Agreement (IGA).
Under the Model 1 IGA, which applies to T&T,
the parties agree to, among other things, a
reciprocal exchange of tax information. The
US Government and the Government of the
Republic of T&T (GORTT) reached an "Agree-
ment in Substance" on November 30, 2014.
This means that the US Treasury will treat
T&T as having an "IGA in Effect" even though
the final agreement is yet to be signed or
brought into force.
Noteworthy of mention, is the fact that
other Caribbean countries such as Jamaica
and Barbados have had an IGA in force since
September 2015 and St. Vincent and the
Grenadines have brought their IGA into force
in May 2016. Once an agreement is in place
in a jurisdiction, it reduces the FATCA obli-
gations imposed on FFIs in that jurisdiction.
So for instance, under the Model 1 Agreement
such jurisdictions will no longer have to with-
hold on non-participating FFIs or recalcitrant
customers. Additionally, there will be no direct
reporting to the IRS but through the local tax
There is another critical and fundamental
component that must be in place to ensure
the successful implementation of the FATCA.
Legislation must be proclaimed locally to give
legal effect to the FATCA. In the absence of
such legislation, local financial institutions
may not be able to legally comply with the
FATCA reporting requirements.
Reporting, how does it affect local financial
institutions and their customers?
Under the FATCA, FFIs are required to iden-
tify, document and report account information
on US persons. FFIs are not required to report
on pre-existing individual accounts if the
aggregate balance or value is US$50,000 or
less and pre-existing entity accounts if the
aggregate balance or value is US$250,000 or
less. However, there is a caveat, FFIs may
choose to report on those accounts.
A key factor in an FFI determining if a
prospective or pre-existing customer is a
reportable account lies in identifying the exis-
tence of any of the following indicia for poten-
tial US status:
i. US resident or US citizen, including those
with dual citizenship;
ii. US address (whether a residence or mailing
iii. US place of birth;
iv. A current US telephone number (regard-
less of whether it is the only number associated
with the account holder);
v. An "in care of" address, a "hold mail"
address, or a PO address that is the sole address
on file with respect to the account holder;
vi. a power of attorney or signatory authority
granted to a person with a US address; or
vii. Standing instructions to transfer funds
to an account maintained in the US, or direc-
tions received from a US address.
In this regard, once any of the foregoing
indicia is identified, the FFI must conduct
certain due diligence procedures to confirm
the customer's US or non-US status. The cus-
tomer may have produced different types of
documentation depending on which index is
identified. If no indicia are found then no fur-
ther action is required from either the customer
or the FFI.
Building on the previous paragraph, it there-
fore implies that the FATCA requires "Know
Your Customer" information to be updated.
This translates into FFIs engaging the full sup-
port and timely responses from customers
particularly when accessing financial services
and due diligence requests are made. Com-
prehensive customer information is of para-
mount importance in order to facilitate the
filtering and extraction of the data for the
reportable accounts in the required file format
(which may mostly likely be in the IRS FATCA
XML file format). This is by no means a trivial
undertaking and may pose significant imple-
mentation challenges for FFIs.
Against this backdrop, local financial insti-
tutions have until September 30, 2016 to report
on reportable accounts for the years 2014 and
2015 in the required file format. The account
information to be reported includes:
• Account holder's name
• Account holder's US taxpayer identification
• Account holder's address
• Account number
• Account balance or value
• For accounts held by recalcitrant/non-
consenting account holders: report aggregate
number and balance and value
• Income paid for period
• Gross proceeds paid to custodial accounts
However, information on income paid and
gross proceeds paid to custodial accounts are
not required for 2014 reporting.
At the time of writing, the IGA for T&T
has neither been signed nor brought into force.
Local FATCA legislation has not yet been
enacted and only the "IGA in Substance"
remains in place. If the situation were to persist
past the 30th September, 2016 deadline for
the exchange of information, local financial
institutions may not be able to legally comply
with the FATCA, resulting in alarming con-
Such consequences include but not limited
to significant negative impacts on the local
financial sector which may arise due to the
suspension of US corresponding banking rela-
tionships (de-risking) US payments and set-
tlements issues, an administrative burden of
FFIs coupled with the imposition of the FATCA
withholding tax of 30 per cent and not to
mention further economic challenges for T&T.
Appreciably, on August 4, 2016 the Internal
Revenue Service (IRS) issued Announcement
2016-27 which has the potential to significantly
impact the 30th September, 2016 deadline for
the exchange of information.
It addressed jurisdictions which are treated
as having an "IGA in Effect", which includes
jurisdictions which have signed but not yet
brought an IGA into force and jurisdictions
which have reached an Agreement in Sub-
stance, but not yet signed or brought an IGA
into force (similar T&T).
To summarise the announcement, jurisdic-
tions which have not yet brought an IGA into
force now have until 31st December, 2016, to
offer an explanation to the IRS as to why this
was not done and confirm their ongoing com-
mitment to do so.
This commitment has to be supported by
a detailed implementation plan inclusive of
deadline dates. In return, the jurisdiction will
maintain the status of having an "IGA in
Effect" until the IGA is signed and brought
into force. If not, effective 01st January, 2017,
the US Treasury will no longer treat those
jurisdictions as having an "IGA in Effect"
which will not auger well for jurisdictions such
In any event, the FATCA is here and has
unleashed its legal and administrative chal-
lenges, potential penalties and reporting obli-
gations among other things.
The question is: how prepared are we?
Unit Trust Corporation
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