US forces financial institutions to report American account holdersPOSTED: 07/26/12 12:44 PM
Jan Beaujon (WIB): “Banking could become more expensive”
St. Maarten / By Hilbert Haar – “Banking could become more expensive in St. Maarten for everyone,” Windward Islands Bank director Jan Beaujon said yesterday in reaction to a decision by the American Internal Revenue Service IRS to oblige foreign financial institutions to report American accountholders with assets exceeding $50, 000.
“We have little choice, because if we do not comply we are no longer able to do business with the United States. All our international bank transfers go through New York,” Beaujon said.
Finance Minister Roland Tuitt brought the legislation up at yesterday’s weekly press briefing. In 2010 the United States enacted the Foreign Account Tax Compliance Act (Fatca). Foreign financial institutions like banks, pension funds, insurance companies, asset managers and private equity funds have to enter into an agreement with the IRS by June 30 of next year. These institutions will be obliged to “undertake certain identification and due diligence procedures with respect to its account holders” and to report to the IRS annually “on its account holders who are US persons or foreign entities with substantial US ownership.”
They will also be obliged to “withhold and pay over to the IRS 30 percent of any payments of US source income, as well as gross proceeds from the sale of securities that generate US source income.”
Beaujon said that banks will have to update their computer systems to enable them to comply with the American regulations.
“I do not know exactly what it will cost, but it will probably be several hundred thousand dollars. Even if you have only ten American clients, you still have to make that investment,” he said.
The Fatca-requirements add another layer to the requirements imposed on financial institutions in the battle against tax evasion, money laundering and terrorism financing. But Beaujon still sees a ray of light.
“If Obama wins the elections in November, this legislation will certainly be implemented. But if the Republicans win I am not so sure whether this will go through.”
While Beaujon did ask himself the question whether it is normal for the United States to impose its rules on the rest of the world, the Windward Islands Bank is doing everything to be ready for executing the new rules next year.
Will this lead to the departure of many American account holders?
“I think Americans have been expecting this, and we have little choice. The same rules also apply in Europe,” Beaujon said.
“St. Maarten will bear the brunt the American legislation. This is going to cost money and a lot of banks don’t want to do business with Americans anymore,” Minister Tuitt said.
The minister said that he is examining several options to soften the blow. One is to piggyback on the arrangement several European countries made with the IRS. Under this agreement they are not bound to withhold 30 percent from payments of US source income, and the exchange of information about tax payers will become reciprocal. Another option is to go with Caricom; it is in the process of negotiating a similar arrangement for its members with the IRS.
Tuitt said that the cost to the banks have to make to comply with Fatca will outweigh revenue for the IRS.
“Several other countries are now turning away American customers because their accounts are not worth the hassle. But St. Maarten is entirely depending on the American economy.”
Another negative effect Tuitt foresees is in the reaction from financial institutions.
“Capital flight may be on the way. These rules might force financial institutions to move to non-complying countries. We will examine all options to arrive at the best solution for businesses in St. Maarten.”