EDITORIAL - Government needs to act on FATCA

THE GOVERNMENT of Jamaica - led by the Bank of Jamaica that acts as regulator of the major financial institutions - needs to take speedy and effective action to implement a government strategy to assist Jamaican financial institutions and affected Jamaican citizens to deal with the implementation of the United States' (US) Foreign Account Tax Compliance Act (FATCA).

The Internal Revenue Service (IRS)-driven FATCA (start date now pushed back from January 1, 2013 until January 1, 2014) requires all non-US financial institutions to send information to the IRS about any accounts maintained by such persons whose accounts and holdings generate income or capital gains. In the event that the institution does not comply, then it will face massive penalties on any business it does within the USA and could be banned from all such activity.

FATCA will require institutions to determine whether their customers are subject to US tax - either by citizenship, residence, or on any other criteria. Exactly how local institutions will do this is unclear. Indeed, many of the FATCA regulations still appear unclear. With the size of the Jamaican diaspora in North America and the number of Jamaicans who have joint accounts with at least one signatory who is a US citizen or resident, it will be difficult to retrieve this information.

The effect on what will happen to the stability of these savings accounts in Jamaica is also unclear.

No one can object to a country collecting taxes due from its taxpayers; so there can be no objection in principle to FATCA. In the USA, as in Jamaica, tax is payable by taxpayers on worldwide income, not just that earned domestically. This newspaper is frequently critical of the inadequate tax-collection mechanism in Jamaica. However, there needs to be an evaluation of the effect of FATCA on Jamaica citizens, and this is where the Government must step in.

country-to-country agreements

Many countries in the world - including France, Germany, Italy, Spain, the United Kingdom, Switzerland and Japan - have already made country-to-country agreements with the USA as to how FATCA is to be implemented in their country. Most of these agreements require financial institutions to report to their domestic governments in accordance with domestic law. Then the local government transmits information it deems appropriate to the IRS. This ensures that local bank privacy laws, as exist in Jamaica, are not violated. In some cases, particular exemptions that benefit citizens are negotiated. This is what Jamaica needs.

What has the Government of Jamaica done? Pretty much nothing, apart from the normal speech of good intentions. Unless one thinks that a referral of the matter to CARICOM, the original inert organisation, is of help.

No one likes the USA's constant actions that imply that its internal laws have worldwide application. But no one will like a massive withdrawal of savings held by our diaspora in Jamaica. No one likes an absent government when leadership is needed. When will we experience a government, and its regulators, that lead instead of dithering?

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