The British Virgin Islands' leader said Tuesday that the Caribbean territory with a major offshore financial sector has started talks with the U.S. Treasury to comply with a law designed to crack down on offshore tax evasion.
The territory of roughly 30,000 people near Puerto Rico is one of the world's top offshore trust jurisdictions and the nominal home to more than 500,000 companies. It provides incorporation registries so global businesses can claim they are based on the islands and effectively sidestep taxes in countries where their work is performed.
Premier Orlando Smith told reporters that his administration is negotiating an "intergovernmental agreement" with Washington to comply with the U.S. Foreign Account Tax Compliance Act, a sweeping anti-tax evasion law that is expected to take effect next year.
Smith said the islands' crucial financial services industry has been consulted and agrees with the move.
"We are of the very considered opinion that this course is the best one to adopt for the BVI," Smith said at a press briefing on the main island of Tortola.
Last week, the Cayman Islands announced an agreement with the U.S. on providing information on accounts held by U.S. citizens and residents under the law, which targets non-tax compliance. Cayman is considered the world's sixth largest financial center and a major haven for mutual funds and private equity.
For years, international companies, hedge funds and super-rich investors have taken advantage of offshore financial centers in the Caribbean and elsewhere, drawn by regulations and legal systems that make it easy to move capital internationally.
Now there is a strong push in the U.S. and European Union to ensure citizens and corporations pay what is perceived as a fair share of the tax burden, said Dan Alamariu, a director at the Eurasia Group political risk consultancy in New York.
"Small jurisdictions with offshore financial sectors will find it increasingly difficult to be non-compliant with U.S. demands in this regard," he said in an email.
Officials in the Caribbean jurisdictions of the Bahamas and Bermuda have also said they intend to comply with the U.S. regulations.
Denise Hintzke, leader of foreign account tax compliance for Deloitte Tax LLP, said in an email that the U.S. Treasury is talking to more than 60 countries around the globe about compliance with the U.S. law.
The act requires U.S. taxpayers with more than $50,000 in a foreign financial asset to annually report the details. The threshold is higher for some people such as married taxpayers filing jointly or U.S. citizens living in a foreign country, according to the IRS.
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