Grand Cayman Banks Will Disclose Information to IRS


Grand Cayman Banks Will Disclose Information to IRS.

The Foreign Account Tax Compliance Act, known by its acronym in English (“FACTA”) is a law of the United States approved in 2010 and in force since 2013.

The objective of this law is the control of tax evasion by the United States government through the identification of American citizens and residents of that country who have money or funds deposited in foreign financial institutions. For this purpose, all financial institutions outside the United States are required to identify and inform citizens and residents of the United States who have deposits and investments in those banks. The banks must make available to the IRS (Internal Revenue Service) all the information related to accounts and financial products of said persons.

For financial entities that do not accept to sign agreements with the IRS, the law provides that transfers of income and other items from these assets abroad are subject to a 30% withholding. This sanction for not reporting the information is in practice a prohibition to do business in the United States.

After signing an agreement with Switzerland to put in place the Foreign Account Tax Compliance Act aimed at punishing banks that help US citizens hide money in offshore bank accounts, the United States has signed a similar agreement with the Cayman Islands. That is why Grand Cayman Banks will disclose information to IRS.

FACTA set severe penalties for individuals who fail to comply with FACTA requirements:  a USD 10,000 failure to file penalty, an additional penalty of up to USD 50,000 for continued failure to file after IRS notification, and a 40 percent penalty on an understatement of tax attributable to non-disclosed assets.

The Cayman Islands are a major financial center. It is in fact is home to dozens of banks, hedge funds, and wealth-management entities, therefore the stake is significant.  Most notably, the deal further demonstrates the global shift towards overall tax transparency.