GATCA is coming to town

Nov 2, 2014

As many of you know, the United States has implemented FATCA (Foreign Account Tax Compliance Act), requiring financial institutions around the world to report the names of their depositors who are US persons (hence potentially liable to pay US tax) – or else face a 30% withholding on their US-sourced income. GATCA also became less of a rumor and more of a reality.

There have been rumors for some time that it would emulate other countries into creating a global tax information-sharing system, underpinned by multilateral agreements between countries. Such an internationalized FATCA, putatively called the ‘Global Account Tax Compliance Act’ (GATCA) could soon be a reality for many international banks, but doubts remain over whether the U.S. – having set the process in motion with FATCA – would be likely to sign up.

On October 29, 2014, many countries signed under the hospice of the OECD documents to confirm their intent to implement such an exchange of information. See Major new steps to boost international cooperation against tax evasion Governments commit to implementing automatic exchange of information beginning 2017 (also “Taxation Must Go Global,” Says German Finance Minister)

But, in some cases, GATCA seems to have caught up with reality. I saw the following on the Isaac Brock Society website Approaching GATCA? “Foreigners” (and not just U.S. foreigners) in Israel finding themselves ensnared …

I was a skeptic that GATCA could really work for countries with Residence Based Taxation. For the US, it’s fairly easy, they “just” need to identify US persons, which can be assumed based on their place of birth […].

The Israeli bank case mentioned on the Isaac Brock Society involved somebody who didn’t have an immigration status in Israel and used a non-Israeli mailing address: Seemed pretty straight forward.

I’m still curious as to how that would apply to somebody who has citizenship in one (or several) country, is a Canadian permanent resident (and Canadian resident for tax purposes), spend minimal time in the (bank’s country) but nevertheless has a long-term immigration status (easy to obtain in the Dominican Republic – or even more relevant: permanent residence given with the investment in certain bank products (Panama) or citizenship by investment (St Kitts & Nevis, Dominica)) and has a mailing address in that country (PO Box or similar). Will they fall under GATCA? Also, any tax authority would take the position that such person is willfully hiding money abroad. But in fact, such an arrangement might have come into place due to legitimate connections [bank’s country] albeit in the form of extended vacations.

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