According recent news reports, the Cayman Islands – long heralded
by the wealthy for its liberal and lucrative tax havens – has reached a binding
agreement with the United States government, in efforts to implement a tax
evasion law and address an issue that has long marred relations between the two
countries. The issue being addressed is coordination with the island nation to
adhere to the Foreign Account Tax Compliance Act (FATCA), a law implemented and
created in 2010, and one that goes into effect in 2014.
Officials familiar with the scenario have stated that the
nations have reached an agreement called an Inter Government Agreement (IGA)
that will remedy this situation and streamline the implementation of this law
in 2014.
According to Robert Stack, the U.S. Treasury Department’s
deputy assistant secretary for international tax affairs, the IGA agreement will
effectively "provide certainty to Cayman's significant fund industry with
respect to FATCA implementation.”
The FATCA Act is a law designed to help prevent tax evasions
in low tax or no tax countries, which are often used as illegal offshore tax
havens by the wealthy. The agreement will mandate that financial institutions
abroad inform the Internal Revenue Service of any accounts being held that have
a balance which exceeds $50,000 U.S. This act is a direct result of the rampant
scandal that was uncovered in the Swiss banking system, which led to its
creation.
The Cayman Islands remains a popular destination for
offshore funds hording, mostly due to the fact that there is no income tax in
this nation and the banking system has consistently appeased to the wealthy. In
2008, President Obama labeled this island nation as a “tax haven” for the
wealthy (who were trying to hide their money abroad to evade income taxes). With
such a deal in place, wealthy citizens and companies will no longer be able to veil
their assets in these offshore holdings.
The U.S. government hopes that the pact will encourage other
low tax or no tax nations – such as Luxembourg, Bermuda and the British Virgin
Islands – to follow suit and sign on board. Most recently, Ireland and
Switzerland have agreed to this FATCA pact. The federal government is currently
entertaining the notion to a slew of other popular offshore tax havens in efforts
to crack down on income tax evasion.
Texas
Lawyer Joe Garza (B) enjoys covering and writing about current tax news
when he is not busy practicing asset protection and estate planning law. As a prominent
tax attorney with more than three decades of practice, Garza possesses a
natural infatuation with tax related news.
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