What is the Foreign Account Tax Compliance Act?
The Foreign Account Tax Compliance Act (“FATCA”) was introduced by the Congress of the United States of America (“US”) and became law as part of the Hiring Incentives to Restore Employment Act on March 18th, 2010. FATCA requires Foreign Financial Institutions (“FFIs") such as credit unions, to report to the Internal Revenue Service (“IRS”), information about financial accounts held by US as taxpayers or by foreign entities in which US taxpayers hold a substantial interest.
FATCA’s aim is to tackle offshore tax evasion by US taxpayers by increasing the transparency for the US IRS with respect to US persons that may be investing and earning income through Non-US institutions. To this end, FFIs such as AffinityPlus Credit Union Limited (“Credit Union”) is required to provide information annually on US accounts which it holds, directly to the US IRS or through a local competent authority.
As an international tax instrument FATCA needed to be incorporated into Barbados’ domestic law in order to have effect. The Barbados Revenue Authority (“BRA”) was appointed as the local competent authority for the purposes of FATCA reporting. The Income Tax (Automatic Exchange of Information) Regulations, 2017 issued pursuant to Section 83 (2) of the Income Tax Act, Cap. 73 of the Laws of Barbados (the “Regulations”) were therefore enacted to facilitate the implementation of FATCA within Barbados’ domestic legislative framework.
How has FATCA impacted on Barbados?
On November 17, 2014, Barbados entered into a Model IA Inter-Governmental Agreement with the US which is a reciprocal agreement, and which was effective, May 27, 2014. This requires that all reporting financial institutions within Barbados are required to provide BRA with the required account information on US persons for the purpose of FATCA reporting.
Who does FATCA affect?
FATCA does not directly affect the ordinary Barbadian citizen with an account and no ties to the US.
FATCA affects:
US Citizens or US registered businesses such as limited liability companies, trusts, partnerships, estates etc.
US individual residents, including US Green Cardholders;
Local businesses having US ownership; and
FFI’s such as banks, broker deals, asset managers, trust companies and credit unions and co-operative societies.
Who is a US Person for FATCA purposes?
While evidence of one or more of the following does not necessarily mean that a customer is a US Person the Credit Union may be able to determine whether a customer is a US Person by the following US Indicia:
a citizen or resident of the United States of America (including green card holders);
a partnership, corporation, estate or trust incorporated or created under US law (US incorporated entity);
a US place of birth;
a US address i.e. residence address or mailing address in the US (including US post office box);
a US “in-care-of” or “hold mail” address that is the sole address the FFI has identified for the account holder.
What are the impacts of FATCA on the Credit Union?
Based on the Credit Union’s core value of Integrity where we seek to build trust and are ethical and transparent in our every interaction, we remain committed to handling your information in a confidential manner. The Credit Union also has an obligation to report annually to BRA as the competent authority in order to meet its reporting obligations under FATCA.
The Credit Union therefore has a legal obligation to report members’ account information to the BRA, based on tax residency and/or US citizenship. BRA would then forward this information on the reportable US accounts to the IRS.
It is important to note that the Credit Union is not required to obtain membership consent prior to meeting its reporting obligations under FATCA.
What are the impacts of FATCA on the members of the Credit Union?
As stated above, the Credit Union is not required to obtain a member’s consent prior to us meeting our reporting obligations under FATCA.
The Credit Union is obliged to collect information from its members to confirm tax residency details for account holders as specified by FATCA and local legislation. This requirement also includes reporting on members who fail to provide the requested information or fail to declare their status as a US resident. Any changes affecting your status as a US citizen must be reported to the Credit Union.
What is the Common Reporting Standard?
Common Reporting Standard or “CRS” refers to the global non-US equivalent of FATCA which represents the standard for the automatic exchange of financial account information developed by the Organization for Economic Co-operation and Development (“OECD”) approved by the OECD Council on July 15, 2014.
It sets out the financial account information to be exchanged, the financial institutions required to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions. As an international standard, CRS needed to be incorporated into Barbados’ domestic law in order to have effect. The Income Tax (Automatic Exchange of Information) Regulations, 2017 issued pursuant to Section 83 (2) of the Income Tax Act, Cap. 73 of the Laws of Barbados is the primary legislation enacting CRS into domestic law. The Credit Union is required to collect and report on, to the BRA on certain information about the account holder’s tax residency.
How will the Credit Union collect information?
The Credit Union will collect information using the following self-certification forms:
a. Individual Self Certification Form;
b. Entity Self-Certification Form; and
c. Controlling Person Self-Certification Form.
Collectively referred to as the “Self-Certification Forms”.
What will a member need to do with the Self Certification Forms?
All new members must complete the applicable Self-certification Form whether individual member, sole trader or business account or entity.
For joint or multiple account holders, each individual person would be required to complete a FACTA/CRS Self-Certification - Individual Form ; and
When self-certifying on behalf of an entity account holder, the representative of the entity would be required to complete the FACTA/CRS Self-Certification - Entity Form,
In an instance where the entity is a described as a “Passive NFE”, in which case each controlling person needs to self-certify using the FACTA/CRS Self-Certification - Controlling Person Form.
When completing on behalf of someone else, kindly tell us in what capacity you are signing e.g. power of attorney. A legal guardian should complete the form on behalf of an account holder who is a minor.
Validity Of Forms
The Self-Certification Forms remain valid unless there is a change in circumstances relating to the information such as the member’s tax status or other mandatory field information that makes the form incorrect or incomplete. In such cases, the member should inform the Credit Union and update the information contained in the Self-Certification Form.
Sharing of Information
Where the tax residence is located outside Barbados, the Credit Union may be legally obliged to pass on the information in the form and other financial information with respect to the member’s financial accounts to the BRA and they may exchange the information with the tax authorities of another jurisdiction pursuant to intergovernmental agreements to exchange financial account information.
Disclaimer
As a financial institution, the Credit Union is not allowed to give tax advice. If you are unsure of your status, kindly seek advice from an independent tax advisor.