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STATES OF JERSEY
RATIFICATION OF THE AGREEMENT BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF JERSEY
TO IMPROVE INTERNATIONAL TAX COMPLIANCE AND
TO IMPLEMENT FATCA
Lodged au Greffe on 6th May 2014 by the Chief Minister
STATES GREFFE
2014 Price code: E P.68
PROPOSITION
THE STATES are asked to decide whether they are of opinion
- to ratify the Agreement between the Government of the United States of America and the Government of Jersey to improve international tax compliance and to implement FATCA, as set out in the Appendix to the report of the Chief Minister dated 2nd May 2014; and
- to ratify the Protocol amending the Agreement between the Government of the United States of America and the Government of the States of Jersey for the Exchange of Information Relating to Taxes, signed at Washington on 4th November 2002, as set out in the Appendix to the report of the Chief Minister dated 2nd May 2014.
CHIEF MINISTER
REPORT
- An Agreement between the Government of the United States of America and the Government of Jersey to improve international tax compliance and to implement FATCA (the Foreign Account Tax Compliance Act), attached within the Appendix to this report, was signed in London by the Chief Minister on 13th December 2013. This Agreement is commonly referred to as an inter-governmental agreement or an I.G.A.
- Also signed by the Chief Minister on 13th December 2013 was a Protocol, attached within the Appendix to this report, amending the Agreement between the Government of the United States of America and the Government of the States of Jersey for the Exchange of Information Relating to Taxes, signed in Washington by the President of the Policy and Resources Committee on 4th November 2002.
- The signing was in accordance with the provisions of Article 18(2) of the States of Jersey Law 2005 and paragraph 1.8.5 of the Strategic Plan 2006 – 2011 adopted by the States on 28th June 2006. The Council of Ministers has authorised the Chief Minister, in concurrence with the Minister for External Relations, to sign on behalf of the Government of Jersey, and has further authorized the Chief Minister to delegate the signing to the Minister for Treasury and Resources or Assistant Chief Minister, as appropriate.
Background
- FATCA was enacted in 2010. It creates an information reporting and withholding tax regime for payments made to certain foreign financial institutions and other foreign entities. FATCA will have global application and therefore the impact is common to all jurisdictions. It places reporting obligations on financial institutions in respect of all reportable accounts, with the threat of a 30% withholding tax being applied if these obligations are not met. The purpose of these requirements isto reduce tax evasion, which the Jersey authorities are committed to support through their active engagement in a number of current international initiatives.
- To ensure consistency of approach, lessen the burden on financial institutions and deal with data protection issues, the U.S. offered the alternative of financial institutions reporting the required information through their home country tax authority, through an inter-governmental agreement, rather than reporting directly to the U.S. Internal Revenue Service (the I.R.S.).
- An advantage of the I.G.A. is that any significant failing on the part of a reporting financial institution will be taken up with the Jersey tax authority in the first instance. With direct reporting, the financial institution would be at greater risk of its transgressions being responded to by the application by the I.R.S. of the 30% withholding tax which is the cost of FATCA non- compliance. The I.G.A. also assists in dealing with any legal impediments arising from data protection legislation. The I.G.A. approach has been adopted by the majority of jurisdictions. It is also fully supported by the finance industry.
- The I.G.A. builds on an ongoing relationship between Jersey and the U.S.A. with respect to mutual assistance in tax matters and a desire to improve international tax compliance by further building on that relationship.
Bringing the I.G.A. into effect
- For the I.G.A. to be brought into effect, there is a need to amend the Agreement between Jersey and the U.S.A. for the exchange of information relating to tax matters (the TIEA), signed in 2002, so that the provisions of that Agreement on procedures and confidentiality can apply equally to the automatic and spontaneous exchange of tax information. The signed amendment, in the form of a Protocol, is attached within the Appendix to this report. When the Agreement was signed, the words "Government of the States of Jersey" were used. While in more recent Agreements the words "Government of Jersey" are used, the U.S. authorities have requested that the Protocol should retain the wording in the original Agreement.
- For the main body of the I.G.A. and its 2 Annexes to be brought into effect, Regulations also need to be made in pursuance of Article 2 of the Taxation (Implementation) (Jersey) Law 2004. The States will be asked to make the Draft Taxation (Implementation) (International Tax Compliance) (United States of America) (Jersey) Regulations 201- following the ratification of the I.G.A., if this is approved.
- Annex I sets out, for all reporting institutions, the due diligence obligations for identifying and reporting on reportable accounts and on payments to certain non-participating financial institutions.
- Annex II makes provision for certain entities to be treated as either exempt beneficial owners or deemed compliant foreign financial institutions, and for certain accounts to be excluded from the definition of financial accounts.
Procedures
- Under the terms of the I.G.A., Jersey Financial Institutions will provide the Comptroller of Taxes with the required information. The Comptroller will forward that information to the Competent Authority in the U.S.A. (the I.R.S.). The Comptroller will not audit the information provided but will check that the returns are complete. It will be the responsibility of the reporting financial institutions to provide the correct information in the correct format. The Comptroller will enforce the obligations placed on the reporting financial institutions in cases of significant non-compliance identified and reported on by the I.R.S.
- The I.G.A. provides for 2014 to be the first reporting year in respect of specified U.S. persons with a reportable account as from 30th June 2014. For 2014, the information required must be reported to the Comptroller by 30th June 2015. For 2015 and the years thereafter, information must be reported to the Comptroller by 30th June of the year following the reporting year.
- The I.G.A. will be supported by Guidance Notes on which the finance industry has been consulted. Not least because there are many financial institutions with offices in each of the Crown Dependencies, it is considered important that, as far as possible and subject to differences in domestic law, the Guidance Notes issued by each Crown Dependency should be the same for the same business area, and should be issued at the same time to financial institutions in all 3 Islands. The Crown Dependencies have worked closely together in the drafting of the Guidance Notes.
Financial and manpower implications
- The passing of the required information to the U.S. tax authority will call for the Taxes Office to put in place the necessary systems to receive the information from the reporting financial institutions and provide for that information's onward transmission. The Taxes Office will also be in receipt of queries from the U.S. tax authority about the returns received, which the Office will need to take up with the financial institution concerned. In certain respects, this will be an extension of the arrangements currently in place for the passing of information to the E.U. Member States under the Agreements on the Taxation of Savings Income.
- It is difficult at this stage to quantify the financial or manpower implications. However, given the commitments entered into with the G20 and the international community generally, the specific commitments to join in the fight against tax evasion to which the I.G.A. relates, and the loss of business that would occur if FATCA is not complied with and the 30% withholding tax is applied, it is considered that the financial and manpower costs to be incurred are unavoidable.
2nd May 2014
APPENDIX