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FATCA and bank secrecy laws

Legal Notes

Wednesday, January 08, 2014    

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THE Foreign Account Tax Compliance Act ("FATCA") is United States of America ("US") legislation designed to target non-compliance with US tax laws by US taxpayers who hold accounts and assets outside the US. FATCA focuses on reporting by non-US financial institutions ("FIs") about accounts held by US taxpayers. It also covers reporting by US taxpayers about their own non-US accounts and assets.

The information FATCA seeks from FIs includes customer identification information, account numbers, account balances or value, gross receipts, gross withdrawals and payments from the US taxpayers' accounts. Non-compliance with the reporting requirements results in the withholding of 30 per cent on certain payments ("withholdable payments") to the FI.

Jamaican FIs are subject to statutory and common-law confidentiality requirements. For example, under the Banking Act, any person who has access to financial records or details of a customer account through a banking relationship is restrained from divulging any information regarding the money or other particulars of the account. The sharing of such information is an offence.

Similarly, under common law principles, it is an implied term of the bank and customer relationship that the bank will keep the customer's information confidential. The sharing of customer information could subject the bank to civil liability. There are exceptions to the duty of confidentiality such as those that arise under the Proceeds of Crime Act, in circumstances where the customer has given consent or under compulsion of a court order. However, compliance with US legislation does not clearly shield a Jamaican FI from liability for breaching its confidential relationship with its customers.

The governments of the United States, France, Germany, Italy, Spain and the United Kingdom have developed a model international tax agreement ("GA") designed to facilitate cross-border exchange of tax information. The Jamaican and US governments are negotiating with a view to entering into such an IGA. The Government of Jamaica is creating a framework whereby Jamaican FIs complying with FATCA would be shielded from bank privacy laws and the Jamaican authorities would be responsible for collecting information from Jamaican FIs and providing that information to the relevant US agencies.

The Revenue Administration Act ("RAA") which creates the office of the Commissioner General (the "Commissioner") and provides for the administration and collection of revenue has been substantially amended to facilitate the exchange of information in accordance with the Organization for Economic Cooperation and Development's standards of effective exchange of information. These amendments will facilitate FATCA reporting by the Jamaican government. They also extend the Commissioner's powers to seek information relevant to bank customers' Jamaican tax liability.

Formerly, the definition of "taxpayer" under the RAA was limited to a person liable to tax in Jamaica. The definition has been broadened to include any person who "is of relevance to a treaty partner in respect of an international tax agreement." The RAA has been amended to give the Commissioner the power to require any person to furnish returns, including information in respect of any other person (whether identified or not) who may be of interest to the Commissioner. Consistent with this, the model IGA requires FIs to furnish annual returns showing account information for US taxpayers to their government who in turn is required to forward the information to the US.

Under the amendments, the investigative powers of the Commissioner have been broadened to include requests for documents in relation to "international tax agreements".

The RAA now imposes a requirement that any person with information relevant to the determination of any person's tax liability must retain those documents for 7 years, or he/she commits an offence punishable by a fine of up to Two Million Dollars. This imposes document retention requirements on Jamaican FIs for information on customer accounts.

The amendments provide that the requirements to produce documents or information under the RAA shall prevail over any duty of confidentiality or secrecy under any relevant law. However, the amendments also make clear that no person should be required to furnish a return including information that would be protected by legal professional privilege.

Under the model IGA, the FI is required to identify US reportable accounts and is required to register with the US Internal Revenue Service.

The US tax legislation seems to have catalyzed the creation of newer and broader powers for Jamaican tax authorities. These revisions to the RAA have substantially changed bank secrecy in Jamaica.

Shani Nembhard is an Associate at Myers, Fletcher & Gordon and is a member of the firm's Litigation Department. Shani may be contacted via shani.nembhard@mfg.com.jm or you can visit the firm's website at www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.

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