The Cayman Islands government has unexpectedly announced readiness to sign a FATCA intergovernmental agreement with the US – and a separate ‘son of FATCA’ treaty with Britain.
FATCA – the Foreign Account Tax Compliance Act – is US tax legislation demanding overseas financial institutions (FFI) supply details of US taxpaying customer accounts.
Failure to comply risks a 30% withholding tax on the FFI’s transactions in the US.
The announcement was made by Cayman Islands Financial Minister Rolston Anglin, who explained the government wanted to maintain the offshore financial centre’s financial integrity and reputation.
The decision follows close consultation with the island’s financial services community.
The Cayman Islands is regarded as one of world’s foremost offshore financial centres and plays a leading role in the local economy, generating 55% of GDP, employing around a third of the population and providing 40% of government revenues.
Scramble to comply
Financial services on the island comprise several sectors:
- Banking – The islands have 250 banks, including 40 of the world’s top 50 banks.
- Investment – Nearly 10,000 fund managers are based on the islands
- Insurance – The Caymans writes nearly US$10 billion of premiums a year
- The Caymans is also the largest super yacht registry in the world.
The US and Britain are changing the world’s offshore financial landscape at a rapid pace.
More than 50 nations – including Britain – have either signed or are negotiating FATCA treaties with the US.
Meanwhile, offshore financial centres are scrambling to sign up to the British ‘son of FATCA’. The Isle of Man was first, followed by Guernsey, Jersey and now the Cayman Islands all within a couple of weeks.
Thin FATCA support in Asia
Gonzalo Jalles, CEO of financial firm trade body Cayman Finance has spoken in support of both FATCA announcements.
“The industry will make sure the right resources are in place to properly implement FATCA,” said Jalles.
Other offshore financial centres in the sites of the British government include Gibraltar, The Turks and Caicos Islands and the British Virgin Islands.
The US and Britain have also pledged to put pressure on non-compliant financial centres elsewhere to sign up to FATCA.
Chancellor George Osborne reaffirmed Britain is determined to stamp out offshore tax evasion in reports published alongside his Budget 2013 speech.
Although many leading economies are in negotiation with the US, take up in Asia and the Pacific rim is a little thin so far, with no countries formally announcing support except Japan, Australia and New Zealand.