On Friday, Guernsey and Jersey chief ministers signed intergovernmental agreements (IGA) with US authorities in a bid to ensure that the islands’ financial institutions will be ready to comply with the US Foreign Account Tax Compliance Act (FATCA).
As a result of the agreements, Guernsey and Jersey tax authorities will exchange information on local US investors with US tax authority the Internal Revenue Service (IRS), which will in turn share information on US financial accounts owned by Guernsey and Jersey citizens.
The information will be shared through local authorities, removing the need for GPs and other entities to enter into direct relationships with foreign tax authorities.
FATCA requires foreign financial institutions (FFIs), which include non-US private equity firms with US investors, to enter into a reporting relationship with the IRS or face a 30 percent withholding tax on certain payments that travel outside the US.
“The signing of this agreement gives Jersey’s finance industry, and its underlying clients, a great deal of added certainty in Jersey and its position in relation to tax compliance and reporting to the USA,” said Geoff Cook, chief executive of Jersey’s promotional body, Jersey Finance.
Some industry actors, such as fund administrators and depositaries, said the long wait for Channel Island FATCA agreements was distracting and costly for industry.
“It has been a hard slog but at least we can now plan with a greater degree of certainty,” said Michael Betley, executive group chairman of Guernsey-based fund administration provider Trust Corporation. “At least it is non-discriminatory in the sense that it affects all businesses worldwide who undertake financial transactions with the US or act for US persons.”
The agreements follow the ‘Model I’ IGA, originally established in July 2012, which has also been signed by ten other countries: the UK, Costa Rica, Cayman Islands, Ireland, Spain, France, Germany, Mexico, Norway and Denmark.