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Fatca: How comfortable are you with government having access to your personal financial information?

Bermuda resident readers of the Moneywise column tell me that they like to read my articles (and I thank them for that) but they will inevitably point out that they aren't too interested when I go off on United States tax tangents. Well, they have a right to object since they are not those individuals called US persons, coping with the multiple financial and tax challenges of living and working offshore. And, honestly and truly, tax-related financial issues are so boring. However, dear readers, you need to read this very dry missive that follows because, if current discussions are brought to fruition between the Bermuda Government and United States tax authorities, the initiative that will follow has the potential ability to affect the personal confidentiality of every Bermuda resident with bank accounts and financial interests held both here and abroad. You are about to learn more about what are fast becoming multiple bilateral (i.e. crossmatched or should I say cross-hatched?) intergovernmental agreements (Fatcas) between countries to implement individual resident identification for global tax reporting and the combating of tax evasion. In a little noticed statement, tracked mostly by international tax and finance specialists like me, the United States Department of the Treasury announced on November 08, 2012 that the 'US Was Engaging With More Than 50 Jurisdictions To Curtail Offshore Tax Evasion' under their Fatca (Foreign Account Tax Compliance Act) model agreements. (Source:

http://www.treasury.gov/press-center/press-releases/Pages/tg1759.aspx ) According to the press release above, 'the jurisdictions with which US Treasury is working to explore options for intergovernmental engagement include: Bermuda, Brazil, the British Virgin Islands, Chile, the Czech Republic, Gibraltar, India, Lebanon, etc'. The Department of the US Treasury initiative will streamline this reporting in a new reciprocal sharing of financial information process. Currently, Bermuda (foreign) banks and financial institutions are required under the original US Fatca Act to report certain detailed information on US citizens' foreign accounts and financial interests directly to United States Internal Revenue Service. The Fatca formal deadline, in general, is in a matter of weeks, January 1, 2013. At the outset of the US Fatca US global initiative, foreign financial institutions, regulatory agencies, governments and trade groups provided severe opinions on the vastly complex and time costly hurdles embedded within the Act, citing many concerns, including the legal contravention of privacy laws in their own countries. However, not withstanding those concerns, financial institutions worldwide are now significantly challenged to implement costly due diligence, compliance and reporting structures to comply with this United States government — now appearing to be a non-negotiable mandate. The severe penalties for non-compliance are financially and competitively punitive to any foreign financial institution wishing to conduct investment business with the United States. The remediated solution, now in effect, by the United States (which tax and financial commentators have speculated may have been part of the US plan all along) was that foreign financial institutions would instead report all information to their own government, who would then share information with the United States government. In reciprocity, the US government would provide financial information on accounts held in the US by that country's residents to that country's government Reciprocal intergovernmental agreements, in general, are this: you tell me about your accounts, and I'll tell you about mine. This type of financial information sharing agreement proposes to encompass every Bermuda resident with financial holdings held or situated in financial institutions in the United States. Certainly, US citizens, green card holders, and US residents for income tax purposes are aware, or should be aware of the FBAR (Report of Foreign Banks and Financial Accounts linked to Fatca agreements) reporting and filing requirements. Is a US /Bermuda intergovernmental Fatca agreement that may encompass all accounts held in the United States by Bermuda residents, regardless of nationality, in the works? At press time, it is unclear where the Bermuda Government stands in the negotiation stages, however, even with such limited information we still need to understand fully the seriousness of this global reporting initiative. Major questions arise. Bermuda currently does not have income tax legislation. So the questions are: n Who will handle this highly confidential information provided to government, both from Bermuda financial institutions, and US financial institutions? n What government department will be responsible for its confidential safety: Ministry of Finance, Accountant General's office, Internal Audit, Auditor General? n What will this information be used for? n How comfortable are you with the fact that the government will have access to your personal financial information (encrypted or not)? n Does government have a verifiable transparent segregated processes in place that cannot be breached? Are there more Fatca agreements to follow? If potential planning relocation to another jurisdiction is considered, you are advised to consult their Fatca agreements with all countries. The 'son of Fatca' initiative currently under way in the UK seeks to force the Crown territories and overseas territories, Guernsey, Jersey, and Isle of Man, Cayman, Bermuda to report UK resident accounts held offshore into an 'exchange of information' with the UK government. (Source: the Cayman News Service Business dated November 30, 2012.

http://cnsbusiness.com/ and The Royal Gazette, December 06, 2012.) You may have thought that Fatca had nothing to do with you — as a Bermuda resident who is not a US person, related to a US person, or doing business in the United States. Think again.

Martha Harris Myron CPA PFS CFP (USA) TEP is a cross border financial planning specialist at Patterson Partners Ltd providing integrated cross-border tax, estate, investment advisory and related strategic planning services for Bermuda residents and international citizens with US connections. Her articles are featured in domestic and international professional publications. For additional information, please contact mmyron@patterson-partners.com or call 296 3528 http://www.patterson-partners.com

Your bank information: Think again if you thought that FATCA (Foreign Account Tax Compliance Act of 2009) had nothing to do with you, our columnist writes.