FATCA and IGA further explained II: practical implications and obligations

Publication

12 May 2015

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The Foreign Account Tax Compliance Act ("FATCA") is a US law, enacted in 2010 with the aim to combat tax evasion by United States persons ("U.S. persons") holding investments in offshore accounts. On 16 December 2014, the Minister of Finance of Curacao signed an intergovernmental Agreement with the Minister of Finance of the United States of America ("IGA") to capacitate the obligations of the FATCA. The IGA however is not sufficient for Curacao to comply with the obligations of the FATCA. Existing legislation, such as the National Ordinance Personal Data ("Ordinance Personal Data"), has to be amended. The IGA provides a legal basis for the existing legislation to be adjusted. In the first part of this publication, we discussed the intended amendment of the Ordinance Personal Data. In this second part, practical information with regard to the obligations of the FATCA and IGA will be discussed.

Who is subject to the FATCA and IGA?
All financial institutions in Curacao must comply with the obligations of the FATCA and the IGA. Pursuant to the IGA, financial institutions are custodial institutions, depository institutions, investment entities and specified insurance companies. Under specific circumstances as further described below, the customer accounts of these institutions must be reviewed by the financial institution in order to assess an obligation to report. The following accounts are excluded and are not treated as reportable accounts:

  1. a retirement or pension account;
  2. non-retirement tax-favored accounts;
  3. term life insurance contracts;
  4. estate accounts;
  5. escrow accounts; and
  6. partner jurisdiction accounts*.

Accounts with a balance or value that does not exceed USD 50,000 are also not required to be reviewed, indentified or reported.

How will be determined if the accountholder is a U.S. person?
The IGA gives indicia for assessing whether or not the account holder qualifies as a U.S. person. The following items are indicia that the accountholder may be a U.S. person:

  1. identification of the account holder as a U.S. citizen or resident;
  2. unambiguous indication of a U.S. place of birth;
  3. current U.S. mailing or residence address (including a U.S. post office box);
  4. current U.S. telephone number;
  5. standing instructions to transfer funds to an account maintained in the U.S.;
  6. currently effective power of attorney or signatory authority granted to a person with a U.S. address; or
  7. an "in-care-of" or "hold mail" address that is the sole address the financial institution has on file for the account holder. In the case of a preexisting account that is a lower value account, an "in-care-of" address outside the U.S. or "hold mail" address shall not be treated as U.S. indicia.

The financial institution must assess if a customer account must be reviewed based on the abovementioned indicia.

What information must be provided?
If a financial institution has reviewed a customer account and comes to the conclusion that the accountholder is a U.S. person, the following information must be provided:

  1. the name, address and U.S. TIN**. In case the accountholder is an entity the information of the controlling person must be provided;
  2. the account number;
  3. the name and identifying number of the financial institution;
  4. the account balance or value as of the end of the relevant calendar year***.

If the financial institution has a branch, the branch must provide the information itself in the country it is established in. The financial institution cannot provide this information on behalf of the branch if it is located in another country.

How will the information be provided to the IRS?
All financial institutions must register themselves with the IRS before 1 May 2015. After such registration the financial institutions must register in the Web Portal Financial Data Delivery ("Portal") before 10 July 2015. Through the Portal, financial institutions can upload the required information about the U.S. accountholders. The information about the U.S. accountholders must be uploaded in the Portal before 31 August 2015. The inspector of taxes of Curacao will collect and check all the information about the U.S. accountholders. Subsequently, the inspector of taxes of Curacao will, in the period between 1 September 2015 and 10 September 2015, provide the information to the IRS.

Sanctions in case of non-compliance
In case the financial institutions do not provide the IRS with the required information or do not register themselves at the IRS, the sanction may be that a withholding tax of 30% will be levied on U.S. source income.

Further information and assistance
The FATCA and the IGA bring along a lot of obligations. Financial institutions have to comply with these obligations, and non-compliance may be sanctioned with a withholding tax of 30% on U.S. source income. If within your organization any uncertainties or interpretation issues may arise with regard to the legislation and the obligations ensuing thereof, we will be happy to assist and to advise you further on these matters. It is important that the financial institutions do not breach the privacy rights of the accountholders, while complying with the obligations of FATCA and the IGA.

This article is also available as a printable version.

* Partner jurisdiction accounts are accounts maintained in Curacao and excluded from the definition of Financial Account under an agreement between the United States and another Partner Jurisdiction to facilitate the implementation of FATCA, provided that such account is subject to the same requirements and oversight under the laws of such other Partner Jurisdiction as if such account were established in that Partner Jurisdiction and maintained by a Partner Jurisdiction Financial Institution in that Partner Jurisdiction.
** A U.S. Tin is a U.S. federal taxpayer identifying number. If the account is maintained by the financial institution as of 30 June 2014, the financial institution is not required to obtain the U.S. Tin if it is not in the records of the financial institution.
*** In case the account is a custodial account, the following information must also be provided:

  1. the total gross amount of interest, the total gross amount of dividends, and the total gross amount of other income generated with respect to the assets held in the account, in each case paid or credited to the account (or with respect to the account) during the calendar year or other appropriate reporting period; and
  2. the total gross proceeds from the sale or redemption of property paid or credited to the account during the calendar year or other appropriate reporting period with respect to which the Reporting Curacao Financial Institution acted as a custodian, broker, nominee, or otherwise as an agent for the Account Holder.

In case the account is a depository account, the total gross amount of interest paid or credited to the account during the calendar year must also be provided.