GATCA from the Caribbean

Feb 17, 2016 | 0 comments

It may be my toughest assignment yet. However, I’m not expecting too much sympathy. I am currently training and consulting in…Barbados and elsewhere in the Caribbean.

I read an article in today’s Barbados Advocate in which Senator McClean was singing the praises of her government’s strategic approach to tax, through the development of many more double tax treaties between Barbados and the rest of the world e.g., Colombia, Mexico, Panama, Qatar, Bahrain and UAE.

I wrote a brief letter to the editor this morning, supporting this kind of strategic development. However, I did make a couple of points that I hope were viewed well. I made them because it’s easy for us to forget in Europe or the US, that tax strategies in some parts of the world may not be as advanced as elsewhere.

My first observation was that having lots of shiny new double tax treaties is great. But as the more advanced nations already know, you will end up with a complex and manual tax landscape that does not achieve the intended object of fostering inbound investment. The trick is to make sure that the tax system that underpins the treaties is robust, consistent, efficient, standardized and electronic (see 2013 EU Tax Barriers Business Advisory Group Report).

Secondly, some of the latest tax strategies from the G20 have as their base the principle of extra-territoriality, as has been evidenced in relation to FATCA. While the evolution of FATCA into GATCA may have given some bipartisan structure to the exchange of tax information through a level of reciprocity (IGAs for FATCA and CRS for AEoI), there is no doubt in my mind that this would not have happened were it not for the tidal wave of extra-territoriality generated by the US.

That doesn’t mean it’s a bad thing by the way, although many disagree. However, we are where we are. The problem is that, if you are a large bank or a large government, you probably have the resources to respond and comply. That can’t be said for smaller countries like those in the Caribbean and elsewhere. They have far fewer resources and must focus what resources they do have. You could therefore argue that, even in the simpler world of CRS, where much of FATCA’s unnecessary complexity has been stripped away, this still leaves a very great problem for smaller countries.

The problem in GATCA for these small countries is that while FATCA was a bilateral issue between the US and one country, that’s not the case for GATCA. With over 100 countries committed to exchange information in and between each other, all these smaller countries are struggling just to get the domestic legislation in place necessary to put their domestic financial firms under the legal obligation to send information to their regulators. As an example, St Vincent and Grenadines has only just published the draft of its new domestic law needed to meet FATCA requirements of the IGA signed in 2014 with the US. Once the legislation is in place to support the commitments made, there is the thorny issue of practicality. The US mandated its IDES system which could be described mathematically as difficulty + frustration x complexity, cubed. However, in GATCA the vast majority of countries have not yet established the practical mechanism by means of which all this (personal, sensitive and private) financial data will actually be moved. So, if you are a small government, like Barbados, with lots of foreign bank account holders and you believe that 2017 is time enough to get sorted before your first exchange with 99 other countries – I beg to differ.

If the governments themselves face problems, that’s nothing compared to the country’s financial firms. Even the largest are not large by EU or US standards and they will struggle. The documentation is not really an issue, since GATCA has established self certifications as the model. If these are accepted, then re-documenting clients to gather GATCA data will be a pain, but not insurmountable. No. What’s going to be difficult, especially for small countries like Barbados that naturally attract large numbers of foreigners, is that the financial firm will need to track GATCA status (i.e. in which jurisdictions are you liable to pay tax as opposed to ‘Are you an American? Yes or No?’). The difficulty will be slicing and dicing all these accounts and their data into the report that the government needs so that it can parcel out the data based on the countries that should have it. Smaller financial institutions just do not have the skills, knowledge, experience or financial resources to meet this kind of compliance burden. The answer will undoubtedly be ‘pragmatism based compliance’ i.e. do what we can do and hope it’s enough, because clients are certainly not going to pay extra for it and there is absolutely no benefit for the financial institution here.

So, while the sun shines and the sky is blue, all is well with the world, I do feel a great deal of sympathy for the financial firms out here and in other smaller jurisdictions around the world. No-one stopped to think about them when these frameworks were being put together, yet they will be forced to step up to the plate nevertheless.

Where is my factor 50?

Image Credit: Nick Kenrick>

Author

Ross McGill

Ross McGill

CEO, TConsult

Ross McGill is the CEO and subject matter expert for TConsult. Ross is a specialist in QI and FATCA operational compliance, cross border tax reclaims, relief at source and information reporting. He over 23 years of experience in financial services, including 19 years at C level; and 30 years’ senior management experience in blue chip FMCG, including sales, marketing and operations.

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