Yandraduth Googoolye: Foreign Account Tax Compliance Act
- developments in Mauritius
Keynote address by Mr Yandraduth Googoolye, First Deputy Governor of the Bank of
Mauritius, at the launch of the Foreign Account Tax Compliance Act Survey by KPMG,
Ebène, 5 September 2012.
* * *
Distinguished guests, a very good morning to you all. It is a great honour to be here today to
address you on the launch of the KPMG Mauritius FATCA Survey.
A few months ago, the Governor had addressed a similar audience on the Foreign Account
Tax Compliance Act1 (FATCA). Today, I would like to highlight some of the main
developments about the FATCA for us to assess the depth and magnitude of this emerging
regulatory issue. Although the FATCA was enacted in 2010, surprisingly, there are still a few
countries which are blissfully unaware that such a law as the FATCA even exists and which
are far from realizing the impact that this law will have on them. Seeing the number gathered
here today, I am happy to note that Mauritius is not one of those countries and I commend
KPMG for organizing such forums where we can all come together and take stock of where
we are heading in this area.
For a long time, there were those who were happy to brush aside the FATCA. Why would
foreigners agree to act as Inland Revenue Service (IRS) agents? Surely, the US would soon
realise that those who hailed the FACTA as "an atomic bomb to kill a fly" were right. They
would wake up to reality, repeal this "breath-takingly arrogant law" (i.e. FATCA), and all
would be well again.
There were also those - the smaller countries - who were happy to sit back and think that
the "big guys" would take care of the FATCA. Enough pressure would be exerted on the
US and they would back-peddle on their US-centric law.
Not many would have predicted the turn of events that followed. UK, France, Italy, Spain
and Germany have seen in the FATCA a new opportunity. They have agreed to the
FATCA-principle and are entering into agreements with the US to not only implement the
FATCA but to improve offshore tax compliance. The communiqué issued jointly by the
US and the 5 European countries - the "FATCA Partners" as they are called - is revealing
and I quote: "For many years France, Germany, Italy, Spain, UK and US, have been partners
in countering offshore tax evasion and improving international tax compliance so that all
citizens pay their fair share of taxes due under the law."
On 26 July 2012, the US Treasury released a model intergovernmental agreement for
implementing the FATCA. Two versions of the model agreement - a reciprocal version and a
non-reciprocal version - were issued. Both versions establish a framework for reporting by
financial institutions of certain financial account information to their respective tax authorities,
followed by automatic exchange of such information under existing bilateral tax treaties or tax
information exchange agreements. Both versions of the model agreement also address the
legal issues that had been raised in connection with the FATCA, and simplify its
implementation for financial institutions.
The reciprocal version of the model also provides for the U.S. to exchange information
currently collected on accounts held in U.S. financial institutions by residents of partner
countries, and includes a policy commitment to pursue regulations and support legislation
that would provide for equivalent levels of exchange by the U.S.
The OECD has welcomed the conclusion of negotiations between the U.S. and the
5 European countries. The Secretary General of the OECD has in fact expressed the intent
of the OECD to work closely with interested countries and stakeholders to design global
solutions to global problems for the benefit of governments and businesses around the world.
Where does this leave Mauritius? I believe that we also ought to be seeking to enter into
Intergovernmental Agreements of the model types proposed by the U.S.
We are on the OECD "White List" as a jurisdiction with acceptable tax standards in
compliance with OECD norms and best-practice principles and adhere to international
standards on transparency and exchange of information set by the OECD. We are also
recognised by the World Bank, the IMF and the FATF as a clean and transparent jurisdiction
with a sound legal, regulatory and supervisory framework.
Information exchange in tax matters, indeed, ranks high on our agenda. With 36 Double
Taxation Avoidance Agreements (DTAA) in force, nine others awaiting ratification and
12 DTAAs under negotiation as well as half a dozen Tax Information Exchange Agreements
(TIEA) in place and others in the pipeline, Mauritius has demonstrated that it is committed to
the concepts of transparency and effective exchange of information. In fact, to further
improve the effectiveness of our exchange of information mechanism and allow us to provide
assistance to our partners in the collection of foreign taxes, Mauritius proposes to become a
party to the Convention on Mutual Administrative Assistance in Tax Matters which has been
jointly developed by the OECD and the Council of Europe. Mauritius is definitely a jurisdiction
of substance and has in place the necessary mechanisms for effective exchange of
information in tax matters.
Importantly, as at present, however, we do not have in place any income tax treaty or Tax
Information Exchange Agreement with the US, - a prerequisite to enter into
Intergovernmental Agreements of the model types proposed by the US. Mauritius has never
refused to sign an exchange of information agreement. We should, therefore, endeavour to
pursue negotiations in this area with the US. However, even if an agreement were to be
entered, when would it be reached? Would this leave us with sufficient time to meet the
looming FATCA-deadline? Or would the OECD succeed in negotiating a third type of model
agreement with the U.S. for those countries that do not have in place such treaties or
agreements?
Such questions touch upon issues well beyond the remit of the Bank. It is for this reason that
at the level of the Bank, we have urged Government to consider setting up a collaborative
platform comprising relevant stakeholders to reflect on the implications of the FATCA in
Mauritius and take a concerted view regarding its implementation. I am very pleased that the
collaborative platform has been constituted. A Joint Working Group comprising
representatives of the Mauritius Bankers' Association (MBA) and the Bank has also been set
up to evaluate the impact of FATCA on banks in Mauritius and I am very appreciative of the
contribution from the MBA in this endeavour. Rest assured that the authorities are taking this
matter seriously.
What is certain at this stage is that we will have to comply with the FATCA. In some way or
another. Yes, there are costs. Yes, it is cumbersome. And yes, the challenges are numerous.
Yet, we have no choice but to comply.
FATCA is here to stay. It would be a bad idea to ignore it. And an even worse idea not to
comply with it. Instead of looking at the FATCA as the insurmountable monster, we should be
considering how to use it to our advantage - just as the FATCA Partners have done. With
these Intergovernmental Agreements, these jurisdictions can hope to gather information on
their own citizens and claim taxes back. They have been far sighted and have turned the
FATCA threat into an opportunity. We should do the same. Let us seize this opportunity
before it is too late.
The first step would be to see how best to comply with the FATCA. The sooner this is
achieved, the better it would be for us. We could then start selling our jurisdiction as a
FATCA- compliant one. Our FATCA-compliant status should be used to attract investors to
our jurisdiction. The so-called murder weapon (i.e. the FATCA) should be used to entice
those who have clean money and are not running away from paying their fair share of taxes,
to invest in Mauritius. Financial intermediation which has over the years consolidated its
position as an emerging sector of the economy now contributes nearly 10 per cent to the
GDP. We should capitalise on the fact that Mauritius offers the best doing business
environment in Africa. While the World Bank's 2012 Doing Business Report ranks Mauritius
23rd globally out of 183 economies, we rank 13th in terms of "protecting Investors" and 11th
in terms of "Paying Taxes". According to the Global Competitiveness Report 2012-13,
Mauritius ranks 13th in terms of "strength of investor protection". Opportunities to boost the
financial intermediation sector's potential, therefore, cannot be ignored. As I have said
repeatedly, Mauritius is not a tax haven and the FATCA provides us with yet another
opportunity to show this to the world.
FATCA forces us to think differently - just as the threat of the Indian General Anti-Avoidance
Rules (GAAR) does. The current economic climate has demonstrated more than ever that
we need to be ready to meet the challenges that are thrown our way. We cannot keep doing
things the way we used to. We need to change and adapt. We need to find new avenues, to
innovate. While the financial intermediation sector grows on average by 5 per cent annually,
we seem to have stagnated in terms of new products. The Global Competitiveness Report
2012-13 ranks Mauritius 47th in terms of "availability of financial services". We lag well
behind in terms of "capacity to innovate", be it in our global rank or regional rank. Such
metrics confirm that we need to broaden the spectrum of our financial services.
I hope that this seminar will address many of the queries that we have on the FATCA and its
compliance.
I once again commend the organisers for providing the relevant stakeholders with a platform
where views can be exchanged and I hope that more ideas emerge on how we can give a
positive spin to the FATCA. One final advice, if I may: Turn Challenges into Opportunities!
Think differently!
Thank you for your kind attention.