“Under the EUSD, Guernsey now automatically exchanges information with 27 other countries,” even though it is not, technically, a member of the European Union, says Tony Mancini, executive director of KPMG Channel Islands and head of tax at its Guernsey office.
The EUSD took effect in 2005, and, similar to FATCA, was aimed at flushing out tax evaders by making them pay tax to their home country on earnings from savings held in third countries.
“So if anyone were concerned about setting a precedent, as regards the automatic exchange of information, well, that precedent has already been set. Arguably, the US would be just one more country, bringing the total up to 28.”
Mancini spoke to International Adviser a day after addressing the FATCA question at a KPMG briefing on the matter in Guernsey, in which he revealed that Guernsey was looking into the possibility of seeking a “FATCA partnership” with the US.
He was referring to an agreement unveiled by the US Treasury Department on 8 Feb, under which financial institutions in five European countries, including the UK, would forward the data on their American clients sought by the US Internal Revenue Service to the governments of the countries in which they were located, which would then forward it to the US.
The fact that Guernsey was considering a similar arrangement with the US was later confirmed by a Guernsey government spokesman, who said officials were “in discussions with the finance industry” on whether the island should consider this approach.
Peter Niven, chief executive of Guernsey Finance, the promotional agency for the island’s financial services industry, also confirmed that Guernsey was “looking at all options open to us for the future” with respect to FATCA, although he observed that “following the UK’s lead in reaching an agreement with the US” was “only one potential road to take”.
Not simple…
Mancini agrees with Niven on this point, and says that in spite of the fast-approaching january 2013 deadline for beginning to comply with FATCA, discussions in Guernsey “are in the very early stages”.
What is more, adding the US to the list of countries with which Guernsey now exchanges information under the EUSD isn’t quite simple as inserting another name on a list, since the current EUSD is “very limited in scope, applying to bank interest and not much else” – unlike FATCA, which “goes way beyond that”, Mancini notes.
Furthermore, little is yet known about how the “FATCA partnership” between the US and the UK, France, Germany, Italy and Spain will actually work, Mancini points out.
“All we’ve really seen so far is a statement from the [five countries’] governments saying that they were going to have talks about an agreement, the principle behind which was that their financial institutions would report to their own tax authorities and thus would not need to enter into an agreement with the IRS, and wouldn’t have all the withholding requirements [originally contained in the legislation], which, for a lot of institutions in these countries, will make life an awful lot easier."
Previously in these five countries, and in most other countries at the moment, FATCA would oblige all financial institutions with US clients to establish a direct relationship with the US Internal Revenue Service, and report directly to it the tax-relevant details of these Americans.
The FATCA partnership, which had not been reported before 8 Feb, was widely regarded as a potential breakthrough for non-US banks and other financial institutions with American account holders, many of which have been highly critical of the costs and complexities of having to comply with the FATCA requirements.
Automatic information exchange
Like other tax experts working in the FATCA/EUSD space, Mancini sees FATCA as part of a global trend – towards increasingly automatic exchanges of information – among countries keen to stay on good terms with powerful members of such entities as the G20, the European Union, and the Organisation of Economic Development and Cooperation.
In addition to FATCA and the EUSD, he notes, another sign of this trend is the OECD’s Multilateral Convention on Mutual Administrative Assistance on Tax Matters, first developed by the Council of Europe and OECD in the 1980s, and formally committed to by all the G20 member countries last November at a ceremony in Cannes.
A key question for Guernsey, Mancini says, remains – and will continue to be debated in the months to come, as the implementation date for FATCA moves ever closer.
“That is, that if we accept this to be the case, and there will be a procession of territories moving to automatic exchange, where in that procession do we want to be.”
