FATCA Compliance Problematic For Bahamas And Panama
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.
Under FATCA, any bank anywhere in the world serving US citizens will be required to report on US account holders and disclose their balances, receipts, and withdrawals to the US tax authorities or face a 30% withholding tax on financial assets held in the US by the said bank.
Obviously, the 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 on moral grounds. 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 Governmental 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...
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