The Foreign Account Tax Compliance Act (“FATCA”) is gaining momentum with Bermuda, Malta, the Netherlands, Jersey, Guernsey and Isle of Man signing bilateral agreements with the U.S.   The FATCA bilateral agreements target U.S. taxpayers with foreign accounts and allow for more comprehensive information reporting and imposes a 30% withholding tax on certain payments to accounts held by U.S. taxpayers.  FATCA was enacted as part of the HIRE Act, to ensure there is no gap in the ability of the U.S. government to determine the ownership of U.S. assets in foreign accounts.

With such momentum FATCA is gaining international support.  Offshore jurisdictions are facing a dilemma, since payments made from a U.S. financial institution to a foreign account will be subject to a withholding tax if the information on the U.S. account holder is not provided.  Foreign financial institutions may enter into FATCA agreements individually, if permitted by local government.  But once signed, will the FATCA cause a decrease in business for the these countries?  Isle of Man, for example, is addressing the need for increased awareness of its availability of skilled talent in the financial services sector, hoping to forestall any downturn should foreign companies relocate to avoid information reporting requirements.

Additionally, a conflict could arise between FATCA and local data protection laws, which limit the cross border transfer of personal information.  Consent is often required before a such a transfer can be made, foreign financial institutions will be put in the position of closing accounts where consent is not provided.  Foreign financial institutions will be required to obtain consent to the transfer from the U.S. account holder.  This conflict will continue to arise and its complexity increase.