Virgin Islands’ officials have a plan to mitigate some of the effects of a United States tax law that could cause great difficulties for the territory’s financial services industry Premier Dr. Smith said Tuesday. But the solution will require more information sharing with the American government, he said. Speaking before the House of Assembly, Dr. Smith said that the US’s Foreign Account Tax Compliance Act, which is scheduled to come into force next year, will require “foreign financial institutions” such as the territory’s many trust companies to disclose information about their clients’ accounts directly to the Internal Revenue Service.
In order to save the territory’s financial institutions from a complicated disclosure process, the VI government has decided that it will collect and pass along the tax information the IRS requires.
“This method is preferred, as opposed to the [foreign institution] reporting directly to the US Treasury, as it provides for easier compliance with FATCA by the industry here in the Virgin Islands,” Dr. Smith said.
The premier added that public officers are evaluating exactly which types of financial services businesses will be affected under FATCA and plan to make the public aware of the law’s impact once it is fully known.
Tax complications
In addition to the FATCA’s effects on the financial services industry, many Belongers and Virgin Islanders could face an additional tax burden as well.
Under United States tax law, most American citizens and green card holders are required to pay taxes on their global income regardless of where they live. In practice, this requirement hasn’t always been followed, but in the wake of the 2008 global financial crisis American officials renewed efforts to recoup what they believe is lost tax revenue.
Dr. Smith previously said that FATCA will expose VIslanders with US citizenship to “the possibility of increased reporting obligations” to American tax authorities, with “severe penalties for non-compliance.” Specifically, he said, taxpayers with more than $50,000 in financial assets held in institutions outside the US have to report the funds to the IRS which will be able to fine violators anywhere from $10,000 to $50,000 for any undisclosed assets. According to the law, the reporting requirement is retroactive as of March 2010.