By David McFadden ,AP
KINGSTON, Jamaica — The Cayman Islands says it has reached agreement with the United States to provide information on accounts held by American citizens to comply with a sweeping U.S. law designed to combat tax evasion.
The British Caribbean territory, considered the world’s sixth largest financial center and a major haven for mutual funds and private equity, said the texts of the new pacts will be made public once an official signing ceremony is held.
The Cayman government said the pacts are tied to a U.S. law called the Foreign Account Tax Compliance Act, which was enacted in 2010 and expected to take effect next year. The law targets non-tax compliance by U.S. citizens with foreign accounts around the globe, and Washington is pressing nations to provide client data.
Financial Services Minister Wayne Panton said in a Tuesday statement that the agreements illustrate the tiny three-island territory’s “commitment to engage in globally accepted tax and transparency initiatives.” The islands plan further talks with Britain’s government to finalize terms of a similar information-sharing arrangement for British citizens.
There is nothing illegal about U.S. citizens opening bank accounts and trusts in places like the Cayman Islands or Switzerland, but some people illegally use them to hide money and avoid taxes at home.
Such overseas accounts have come under a crush of scrutiny in recent years, and offshore financial centers like the Cayman Islands and British Virgin Islands have scrambled to sign new international tax treaties and defend their financial sectors.
Zero direct taxation and friendly regulations have helped the Cayman Islands lure global money in recent decades and dramatically transform its economy from one based on seafaring, fishing and rope making to one built on financial services and tourism.
The Cayman government said the agreements with the U.S. will streamline the reporting of information “regarding accounts and nonfinancial entities substantially owned by United States citizens and residents.” It will relay that information directly to the U.S. Internal Revenue Service.
The Foreign Account Tax Compliance Act requires U.S. taxpayers with more than US$50,000 in a foreign financial asset to annually report the details. The threshold is higher for some people such as married taxpayers filing jointly or U.S. citizens living in a foreign country, according to the IRS.
Critics of the U.S. law argue it will be an administrative headache for financial institutions and will make it more difficult for U.S. citizens to have foreign accounts.
Steven Cantor, a Miami-based international tax attorney who works with Cayman financial institutions and trustees, said in a Thursday email that implementation will be “a challenge for all involved” but it’s a step in the “continuing direction of more tax transparency.”