Cayman Islands, U.S. reach pact to fight tax evasion
By Patrick Temple-West
WASHINGTON (Reuters) - The United States has cut a deal with the Cayman Islands that will smooth implementation in the Caribbean island nation of a new U.S. anti-tax evasion law, while pressuring other low-tax and no-tax countries to follow suit.
Criticized by President Barack Obama and others as a tax haven, the Cayman Islands said it has agreed to cooperate with the Foreign Account Tax Compliance Act (FATCA), enacted in 2010 and set to take effect in July 2014.
The Caymans and the United States have initialed an inter-governmental agreement (IGA) to that effect. The pact is expected to be signed soon, government officials said.
The IGA "will provide certainty to Cayman's significant fund industry with respect to FATCA implementation," Robert Stack, the U.S. Treasury Department's deputy assistant secretary for international tax affairs, said in a statement on Tuesday.
FATCA requires foreign financial institutions to tell the U.S. Internal Revenue Service about Americans' offshore accounts worth more than $50,000. It was enacted after a Swiss banking scandal showed U.S. taxpayers hid substantial fortunes overseas.
The Cayman Islands is one of the world's most popular destinations for investment funds to organize for tax purposes. The island nation of 53,000 people has no income tax and is frequently labeled a tax haven by critics.
In his 2008 presidential campaign, Obama called the Cayman Islands a tax haven.
Banks, funds and other financial institutions that fail to comply with FATCA face a 30-percent withholding tax on their U.S. source income, a penalty that could effectively freeze them out of U.S. financial markets. Continued...