On November 3, The Bahamas signed a Model 1B intergovernmental agreement (IGA) with the U.S. to implement the terms of the Foreign Account Tax Compliance Act (FATCA). The Caribbean Association of Banks (CAB) is now strongly urging those Caribbean governments that have not yet done the same to sign IGAs of their own before December 31, 2014.
FATCA was enacted in 2010 by the U.S. to target non-compliance by U.S. taxpayers using foreign accounts. The act requires foreign financial institutions (FFIs) to report to the Internal Revenue Service (IRS) information about financial accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. The CAB calls the impact of FATCA "far reaching", pointing out that it affects any person, U.S. or foreign, who is involved in making or receiving payments that fall within the scope of FATCA. Failure to comply with FATCA could result in a 30 percent withholding tax levied on withholdable payments. It may also result in the potential loss of correspondent banking relationships for banks, which are critical to facilitate business transactions in the U.S.
CAB stressed the need for government action.
"Financial institutions in the region have spent the last few years making the necessary preparations to ensure that they are ready to comply with FATCA. It is now time for their governments to support this work by moving quickly to complete the process of establishing a signed IGA with the U.S.," the association said in a press release issued over the weekend.
Global compliance and international tax firm KPMG notes that governments which have signed a Model 1 IGA with the U.S. have implicit and explicit responsibilities to enable their local Financial Institutions (FIs) to comply with the FATCA. A Model 1 IGA requires the competent authority or its delegate to collect FI and associated account holder information, perform a data quality check on the data and then submit consolidated information to the Internal Revenue Service (IRS) in a secure manner prior to September 30, 2015.
The CAB press release said that IGA's make it easier for partner countries to comply with the provisions of FATCA. Under an IGA, FFI's in partner jurisdictions will be able to report directly to a local competent authority; who in turn will report to the IRS.
"The latest IRS announcement states that after December 31, 2014, countries who have not signed an IGA will only be treated as jurisdictions with an "IGA in effect " provided that they demonstrate "firm resolve" to sign the intended IGA as soon as possible. The U.S. Treasury will review the list of jurisdictions having an agreement in substance (but not yet signed), on a monthly basis, to assess whether any of the jurisdictions should be removed from this list," CAB said.
"Caribbean countries affected by this announcement include Anguilla, Antigua and Barbuda, Dominica, Grenada, Guyana, Haiti, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines and Trinidad and Tobago."

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