The Department of the Treasury has announced that the United States has signed intergovernmental agreements (IGAs) with the Cayman Islands and Costa Rica to implement the Foreign Account Tax Compliance Act (FATCA).
FATCA, enacted by Congress in 2010, is intended to ensure that the Internal Revenue Service (IRS) obtains information on accounts held abroad at foreign financial institutions (FFIs) by US persons. Failure by an FFI to disclose information on their US clients, including account ownership, balances and amounts moving in and out of the accounts, will result in a requirement on US financial institutions to withhold 30 percent tax on US-source income.
To address situations where foreign law would prevent an FFI from entering into an agreement directly with the IRS, Treasury has developed model IGAs. Signed on November 29, the IGA between the US and Cayman is the Model 1B version, meaning that FFIs in Cayman will be required to report tax information about US account holders directly to the Cayman Islands Tax Information Authority, which is the sole channel in Cayman for the provision of tax-related information to other governments. The Cayman Islands Tax Information Authority will in turn relay that information to the IRS.
The Costa Rica IGA was signed on November 26, and is a Model 1A agreement, meaning that the US will also provide tax information to the Costa Rican government regarding Costa Rican individuals with accounts in the US.
