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.