Barbados has agreed to share information with the U.S. under a new law aimed at preventing offshore tax evasion by American citizens. One of the most controversial laws of the Barack Obama administration, the Foreign Account Tax Compliance Act (FATCA) requires financial firms to report information on U.S. account-holders to the relevant tax authorities.
By signing the agreement, Barbados has demonstrated its willingness to apply due diligence, stated the country’s Commerce Minister Donville Inniss, who signed the agreement on behalf of his country.
Inniss has, however, assured that the deal with the U.S. authorities will not take away the financial flexibility the government is propagating.
According to the U.S. Treasury Department, FATCA applies to U.S. citizens who have more than US$50,000 in their personal accounts. Firms that do not comply will face a 30% withholding tax on their U.S. investment income and could in effect be frozen out of U.S. capital markets.
Many analysts have criticized the law, but the U.S. government has defended it, saying that the FATCA will increase compliance by U.S. taxpayers rather than to enforce collection from foreigners.
It has been estimated that the U.S. Treasury loses as much as $100 billion annually to offshore tax non-compliance.
Several countries in Latin America and the Caribbean have already signed up for this U.S. law, including the Cayman Islands, which has long been suspected of being a tax haven. Other LAC countries that have signed the law include Bermuda, Costa Rica and Mexico, while Chile is said to be negotiating with U.S. authorities.
Barbados believes that signing the FATCA will help it fix loopholes in its own financial system. Under U.S. tax law, U.S. persons are generally required to report and pay taxes on income from all sources. The term ‘U.S, persons’ includes U.S. permanent residents regardless of where they reside.