Background of the Foreign Account Tax Compliance Act (FATCA)

Introduced by the United States (US) in 2010 as part of the US Hiring Incentives to Restore Employment (HIRE) Act, FATCA aims to combat tax evasion by ensuring that US taxpayers who earn an income in other parts of the world accurately report those earnings.

Financial Institutions outside the US are also required to report information on financial accounts held by their US customers to the Internal Revenue Service (IRS), which is the tax authority of the US. In the event that a foreign financial institution fails to abide to FATCA, that financial institution is imposed with 30% withholding tax on its US source income.

In this context, the Government of the Republic of Mauritius and the Government of the United States of America signed an Agreement for the Exchange of Information. This Agreement serves as the legal framework that enables the exchange of tax information between the two jurisdictions

.

Following this, another agreement known as the Inter-Governmental Agreement (IGA) was signed to improve international tax compliance and for the implementation of FATCA in Mauritius. On the 29^th of August 2014, both the Agreement and the IGA entered became legally binding.

The Agreement provides for the exchange of tax information, be it upon request, spontaneous or automatic between Mauritius and USA while the IGA provides for the automatic reporting and exchange of information in relation to accounts held with Mauritius.

The competent authority, in Mauritius, is the Director-General of the Mauritius Revenue Authority (MRA) and his authorized delegates. They are responsible for the implementation of FATCA. When the MRA receives the relevant information from financial institutions, they transmit that information to the IRS under FATCA. In other words, the MRA act as an intermediate between a financial institution and the IRS.

It is to be noted that it is not the duty of the MRA to audit the information provided by financial institutions. In fact, the onus is on the financial institution who shall bear the responsibility to decide whether it should get registered with the IRS and to provide the correct information in the correct format to the MRA for exchange with the IRS.

 

In the Guidance Notes on the Implementation of FATCA issued by the MRA, the latter spelled out that for a financial institution to determine how the legislation applies, it is necessary that the financial institution considers whether the entity-

• is a Financial Institution;
• maintains Financial Accounts;
• shows indicators that the Account Holders are specified US Persons;
• needs to register with the IRS and, if so, by when and how;
• has any Reportable Accounts after applying the relevant due diligence;
• needs to report any information and, if so, what information, when and how?

(MRA Guidance Notes)

For your information:

Temple Consulting Limited (TCL) has requisite experience and know-how to provide financial institutions with a variety of services with regards to their FATCA and/or CRS reportings.

Our services include:

• Classification
• Conversion to XML format
• Filing
• Registration with the MRA and the IRS

 

 

For more information, please contact Temple Consulting Limited.

Temple Court,
2 Labourdonnais Street
Port Louis.

Tel: (+230) 210 3588

Email: templeconsulting@templegroup.mu