The Cayman Islands has signed an agreement with the United States to combat offshore tax evasion pursuant to a controversial 2010 law that has caused some notable US expatriates to revoke their US citizenship.
The US Department of the Treasury announced Friday the US has
signed an intergovernmental agreement with the Cayman Islands to
enforce the Foreign Account Tax Compliance Act (FATCA) in what it
bills as an effort to promote transparency.
In the Cayman Islands – one of the world’s largest offshore
financial centers - foreign financial institutions (FFIs) will be
required to share tax information about US account holders with
the IRS via the Cayman Islands Tax Information Authority.
Passed by Congress in 2010, FATCA seeks to snuff out Americans
avoiding US taxes overseas by requiring FFIs to report yearly to
the Internal Revenue Service (IRS) on US citizens holding over
$50,000 at a year’s end. Should FFIs refuse to share the
information, US financial institutions are ordered to withhold a
portion of payments made to the FFIs. The FFIs can make
agreements directly with the IRS or follow one of two kinds of
agreements their host country signs. The Caymans’ agreement is a
Model 1B agreement; a different agreement signed Tuesday with
Costa Rica is a Model 1A.
"By working together to detect, deter, and discourage offshore
tax abuses through increased transparency and enhanced reporting,
we can help build a stronger, more stable, and accountable global
financial system. We look forward to collaborating with the
Government of the Cayman Islands to further these
objectives," said Julie Nutter, Minister-Counselor for
Economic Affairs at the US Embassy in London, in a statement.
Nutter signed the agreement for the US on Friday.
The Cayman Islands signed a similar agreement with the United
Kingdom early this month.
"These agreements underscore growing international cooperation
in the effort to end tax evasion everywhere,” said Deputy
Assistant Secretary for International Tax Affairs Robert B.
Stack.
Yet FATCA requirements are also putting a strain on American
expatriates in dual citizenship households that don’t have lavish
funds hidden abroad, or that include a non-American spouse or
partner who finds the IRS prying into their financial data as
invasive, news service McClatchy reported Friday.
“My husband cannot understand why Americans are so offended by
having their personal emails and phone calls monitored by the
(National Security Agency) yet are very comfortable requiring a
Canadian to hand over their bank account data, which is far more
sensitive,” said Ruth Anne Freeborn, an expat who has lived
in Ontario for over 30 years. She decided to forego her
citizenship - she was born in Oklahoma - in September.
Freeborn’s husband, with a yearly salary of $51,000, is the
family’s sole income earner. He was opposed to sharing his
financial data with the US following the passage of FATCA.
“My decision was either to protect my Canadian spouse and child
from this overreach or I could relinquish my US citizenship,”
she said. “It was with great sorrow I felt I had to
relinquish, but there was no other choice for me and many like
me.”
The amount of citizenship renunciations has gone up from 742 in
2009 to over 1,854 thus far in 2013, according to the State
Department. Some estimate the number is much higher based on
foreign media reports.
In addition, expats say FATCA is causing many overseas banks and
financial institutions to “close out longstanding accounts of
American clients, refuse to open new ones, and deny loans and
mortgages to expats rather than face a US penalty if they don’t
comply with the tax law,” McClatchy reported.
Wealthier expats may be hiding money overseas, yet most expats
like Freeborn are at the mercy of the law.
Entertainer Tina Turner - who has lived in Switzerland for over
20 years and is married to a Swiss citizen - relinquished her US
citizenship this month at the US Embassy in Bern. And Facebook
co-founder Eduardo Saverin forewent his citizenship last year and
now lives in Singapore. The move saved him $67 million in US
taxes, financial experts estimate.
Meanwhile, proposals in Congress to revisit the law have stalled.
“FATCA is a textbook example of a bad law that doesn’t achieve
its stated purpose but does manage to unleash a host of
unanticipated destructive consequences,” said Sen. Rand Paul
(R-KY), when he introduced his bill to repeal FATCA this year.
“Tax evasion is a problem that should be addressed, but not in
an egregious way.”
The US agreed Tuesday to send Costa Rica tax information to its
government regarding Costa Rican citizens with accounts in the
US.
The US has signed 12 FATCA intergovernmental agreements since the
law’s passage. Treasury says its has reached 16 agreements “in
substance” and is pursuing many others.