Wednesday, November 7, 2012

Bahamas, Panama and other Countries cannot comply with FATCA?

Banks in certain financial centres - especially Panama and the Bahamas - will have serious difficulties in complying with the US Foreign Accounts Tax Compliance Act.

The Foreign Account Tax Compliancy Act, known as FATCA, is causing problems for banking jurisdictions such as Cayman Islands, Panama or the Bahamas. Although the law is targeted at American citizens, it can have many unwanted implications for non-US citizens alike. 

FATCA's goal is to increase tax compliance of American owned bank deposits abroad, but what it in effect does is attempting to regulate sovereign (banking) jurisdictions, requiring them to amend laws and change procedures.
This does not sit well with many countries, though few have objected. Some countries, such as the Bahamas, simply lack the legal framework to comply. Under FATCA The United States Internal Revenue Service (IRS) shall conclude Inter Governmenal Agreements (IGA’s) to facilitate automatic exchange of information with foreign tax authorities, but the Bahamas do not have tax authorities because they have no income tax. Instead the Bahamas have to make a decision whether to take the individual route through foreign financial institution agreements (FFI) or to comply on a collective basis. The IRS obviously prefers a collective approach, otherwise some banks might opt-out of FATCA and neutralize the desired result.

Panama is facing a similar problem. Although the country has tax authorities (as well as an income tax), Panama has nothing to gain by exchange of information because of its territorial tax system where all forms of foreign income are tax exempt.
The Panamanian government already concluded some tax information exchange agreements but the regulatory framework is rudimentary at best. There are also many legal and constitutional questions regarding such agreements that remain unanswered. So far Panama has not exchanged any information based on these treaties and politicians are keen on delaying implementation until the elections of 2014. Panama leans on financial services for more than 70% of her exports and dancing to US requests is not a popular tune here.
In the end, the question remains whether the costs of FATCA to the US economy will be higher than the gains.
American expats who already experience difficulties opening a bank account abroad will find it nearly impossible once FATCA is enacted. It does not matter how many countries give in to these demands, or even if countries such as Switzerland give up their banking secrecy.

Their is the possibility that increased tax compliance will simply not offset the costs of compliance banks face and the United States are risking financial isolation.

FATCA Problems???     Have a Foreign Bank Account???
Contact the Tax Lawyers at Marini & Associates, P.A. for a FREE
Tax Consultation at or or
Toll Free at 888-8TaxAid (888 882-9243).


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