Agreement between United States of America and Jersey on International Tax Compliance: Ratification

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A decision made on 1 May 2014:

Decision Reference: MD-C-2014-0065
Decision Summary Title :	Ratification of the Agreement between the Government of the United States of America and the Government of Jersey to Improve International Tax Compliance and to Implement FATCA.		Date of Decision Summary:	31 March 2014
Decision Summary Author:	External Relations		Decision Summary: Public or Exempt? (State clauses from Code of Practice booklet)	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:
Written Report Title :	Ratification of the Agreement between the Government of the United States of America and the Government of Jersey to Improve International Tax Compliance and to Implement FATCA.		Date of Written Report:	31 March 2014
Written Report Author:	Law Draftsman / Law Officers Department		Written Report : Public or Exempt? (State clauses from Code of Practice booklet)	Public
Subject: Ratification of the Agreement between the Government of the United States of America and the Government of Jersey to Improve International Tax Compliance and to Implement FATCA.
Decision(s): The Chief Minister decided to lodge ‘au Greffe’ a Report and Proposition entitled ‘Ratification of the Agreement between the Government of the United States of America and the Government of Jersey to Improve International Tax Compliance and to Implement FATCA’ for States debate at the earliest opportunity.
Reason(s) for Decision: This Intergovernmental Agreement (IGA) between the Government of the United States of America and the Government of Jersey improves international tax compliance and implements FACTA (The Foreign Account Tax Compliance Act), creating an information reporting and withholding tax regime for payments made to certain foreign financial institutions and other foreign entities. Accordingly, the States Assembly is being asked to ratify the IGA and, in order to bring the IGA into full effect, to ratify the Protocol amending the Agreement between Jersey and the USA for the exchange of information relating to tax matters (the TIEA), signed in 2002, so that the provisions of that Agreement on procedures and confidentiality can apply equally to the automatic and spontaneous exchange of tax information.
Resource Implications: The resource implications are detailed in the main Report. It is difficult at this stage to quantify the financial or manpower implications. However, given the commitments entered into with the G20 and the international community generally, the specific commitments to join in the fight against tax evasion to which the IGA relates, and the loss of business that would occur if FATCA is not complied and the 30% withholding tax is applied, it is considered that the financial and manpower costs to be incurred are unavoidable.
Action required: The Greffier of the States to be asked to lodge ‘au Greffe’ the Report and Proposition for debate at the same time as the Taxation (Implementation) (International Tax Compliance) (United States of America) (Jersey) Regulations 201- (MD-C-2014-0079) at the earliest opportunity.
Signature:		Position: Chief Minister of Jersey
Date Signed:		Date of Decision (If different from Date Signed):

Agreement between United States of America and Jersey on International Tax Compliance: Ratification

RATIFICATION OF THE AGREEMENT BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF JERSEY TO IMPROVE INTERNATIONAL TAX COMPLIANCE AND TO IMPLEMENT FATCA.

PROPOSITION

The States are asked to decide whether they are of opinion-

to ratify the Agreement between the Government of the United States of America and the Government of Jersey to improve international tax compliance and to implement FATCA, as set out in an appendix to the report of the Chief Minister dated 2nd May 2014; and

to ratify the Protocol amending the Agreement between the Government of the United States of America and the Government of the States of Jersey for the Exchange of Information Relating to Taxes, signed at Washington on November 4th 2002, as set out in an appendix to the report of the Chief Minister dated 2nd May 2014 .

REPORT

An Agreement between the Government of the United States of America and the Government of Jersey to improve international tax compliance and to implement FATCA The Foreign Account Tax Compliance Act), attached as an appendix to this report, was signed in London by the Chief Minister on the 13th December 2013. This Agreement is commonly referred to as an intergovernmental agreement or an IGA.

Also signed by the Chief Minister on the 13th December 2013 was a Protocol, attached as an appendix to this report, amending the Agreement between the Government of the United States of America and the Government of the States of Jersey for the Exchange of Information Relating to Taxes, signed in Washington by the President of the Policy and Resources Committee on November 4th 2002.

The signing was in accordance with the provisions of Article 18(2) of the States of Jersey Law 2005 and paragraph 1.8.5 of the Strategic Plan 2006-2011 adopted by the States on the 28th June 2006. The Council of Ministers has authorised the Chief Minister in concurrence with the Minister for External Relations to sign on behalf of the Government of Jersey, and has further authorized the Chief Minister to delegate the signing to the Treasury and Resources Minister or Assistant Chief Minister as appropriate.

Background

FATCA was enacted in 2010. It creates an information reporting and withholding tax regime for payments made to certain foreign financial institutions and other foreign entities. FATCA will have global application and therefore the impact is common to all jurisdictions. It places reporting obligations on financial institutions in respect of all reportable accounts with the threat of a 30% withholding tax being applied if these obligations are not met. The purpose of these requirements is to reduce tax evasion, which the Jersey authorities are committed to support through their active engagement in a number of current international initiatives.

To ensure consistency of approach, lessen the burden on financial institutions and deal with data protection issues the US offered the alternative of financial institutions reporting the required information through their home country tax authority, through an intergovernmental agreement, rather than reporting directly to the US Internal Revenue Service (the IRS).

An advantage of the IGA is that any significant failing on the part of a reporting financial institution will be taken up with the Jersey tax authority in the first instance. With direct reporting the financial institution would be at greater risk of its transgressions being responded to by the application by the IRS of the 30% withholding tax which is the cost of FATCA non-compliance. The IGA also assists in dealing with any legal impediments arising from data protection legislation. The IGA approach has been adopted by the majority of jurisdictions. It is also fully supported by the finance industry.

The IGA builds on an ongoing relationship between Jersey and the USA with respect to mutual assistance in tax matters and a desire to improve international tax compliance by further building on that relationship.

Bringing the IGA into effect

For the IGA to be brought into effect there is a need to amend the Agreement between Jersey and the USA for the exchange of information relating to tax matters (the TIEA), signed in 2002, so that the provisions of that Agreement on procedures and confidentiality can apply equally to the automatic and spontaneous exchange of tax information. The signed amendment, in the form of a Protocol, is attached as an appendix to this report. When the Agreement was signed the words “Government of the States of Jersey” were used. While in more recent agreements the words “Government of Jersey” are used, the US authorities have requested that the Protocol should retain the wording in the original Agreement.

For the main body of the IGA, and its two annexes, to be brought into effect Regulations also need to be made in pursuance of Article 2 of the Taxation (Implementation) (Jersey) Law 2004, The States will be asked to make the Draft Taxation (Implementation) (International Tax Compliance – FATCA) (United States of America) Jersey Regulations 201- following the ratification of the IGA, if this is approved.

Annex I sets out, for all reporting institutions, the due diligence obligations for identifying and reporting on reportable accounts and on payments to certain non-participating financial institutions.

Annex II makes provision for certain entities to be treated as either exempt beneficial owners or deemed compliant foreign financial institutions, and for certain accounts to be excluded from the definition of financial accounts.

Procedures

Under the terms of the IGA, Jersey Financial Institutions will provide the Comptroller of Taxes with the required information. The Comptroller will forward that information to the Competent Authority in the USA (the IRS). The Comptroller will not audit the information provided but will check that the returns are complete. It will be the responsibility of the reporting financial institutions to provide the correct information in the correct format. The Comptroller will enforce the obligations placed on the reporting financial institutions in cases of significant non-compliance identified and reported on by the IRS.

The IGA provides for 2014 to be the first reporting year in respect of specified US persons with a reportable account as from 30th June 2014. For 2014 the information required must be reported to the Comptroller by the 30th June 2015. For 2015 and the years thereafter information must be reported to the Comptroller by the 30th June of the year following the reporting year.

The IGA will be supported by Guidance Notes on which the finance industry has been consulted. Not least because there are many financial institutions with offices in each of the Crown Dependencies, it is considered important that, as far as possible and subject to differences in domestic law, the Guidance Notes issued by each Crown Dependency should be the same for the same business area, and should be issued at the same time to financial institutions in all three Islands. The Crown Dependencies have worked closely together in the drafting of the Guidance Notes.

Financial and manpower implications

The passing of the required information to the US tax authority will call for the Taxes Office to put in place the necessary systems to receive the information from the reporting financial institutions and provide for that information’s onward transmission. The Taxes Office will also be in receipt of queries from the US tax authority about the returns received which the Office will need to take up with the financial institution concerned. In certain respects this will be an extension of the arrangements currently in place for the passing of information to the EU Member States under the Agreements on the Taxation of Savings Income.

13 It is difficult at this stage to quantify the financial or manpower implications. However, given the commitments entered into with the G20 and the international community generally, the specific commitments to join in the fight against tax evasion to which the IGA relates, and the loss of business that would occur if FATCA is not complied with and the 30% withholding tax is applied, it is considered that the financial and manpower costs to be incurred are unavoidable.

2 May 2014