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Dec. 02, 2009
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United States: US to Tighten the Noose on Offshore Accounts

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“This Bill Offers Foreign Banks a Simple Choice”

Capitol Hill

Behind the technocratic term “Foreign Account Tax Compliance Act 2009” hides yet another round in the hunt for unpaid US-taxes around the globe. After the US government has successfully extracted the names and account data of 5000 UBS customers and re-negotiated the double-taxation treaty with Switzerland and other former offshore destinations, the next law is already in the making.

On October 27, 2009, Senators Max Baucus (Dem-Montana), John Kerry (Dem-Massachusetts) and Representative Charles Rangel (Dem-New York), chairmen of the Congressional tax writing committees, unveiled the Foreign Account Tax Compliance Act of 2009. Under the new bill, foreign financial institutions, foreign trusts, and foreign corporations would be forced into providing information about their US account holders, grantors, and owners.

“This bill offers foreign banks a simple choice – if you wish to access our capital markets, you have to report on U.S. account holders,” said Ways and Means Committee Chairman Rangel. “I am confident that most banks will do the right thing and help to make bank secrecy practices a thing of the past.”

If enacted the Foreign Account Tax Compliance Act would have the following consequences:

  • Impose a 30% withholding tax on payments to foreign banks and other financial institutions unless they reveal the existence of offshore accounts to the US tax authorities and disclose relevant information including account ownership, balances and amounts moving in and out of the accounts.

  • Require individuals and legal entities to report offshore accounts of USD 50,000 or more on their tax returns.

  • Require wealth advisors who help set up offshore accounts to disclose their activities or pay a penalty.

  • Require electronic filing of information reports about withholding on transfers to foreign accounts to enable the US tax authorities to better match reports to tax returns.

  • Strengthen rules and penalties with regard to foreign trusts, including rules to determine whether distributions from foreign trusts are going to US persons and reporting requirements on US transfers to foreign trusts.

  • Clarify the definition of outgoing US dividend payments that are received by foreign persons so they cannot be disguised as other types of distributions in an effort to avoid US taxes.

The information reporting requirement that foreign bank would need to enter into with the US tax authorities in order to avoid the application of the above mentioned 30% withholding tax, would require the bank to disclose information relating to “United States accounts” held by any US person.

In those instances where local bank secrecy or other laws would prevent the disclosure of account information without a waiver by the account holder (such as in the case of Switzerland), the foreign financial institutions will be required to obtain such waivers or close the relevant account.

The independent Joint Committee on Taxation has estimated the provisions of the Foreign Account Tax Compliance Act would prevent U.S. individuals from evading $8.5 billion in U.S. tax over the next ten years. It seems increasingly likely that this bill will be signed into law since it has the full support of the Obama administration. Particularly, Treasury Secretary Tim Geithner has publicly supported the bill.

So far this bill has not made it to the headlines of the international financial community. Yet its impact and repercussions would be profound and change the rules of international finance drastically. In effect, the bill is a unilateral re-writing of tax treaties between the US and many foreign countries. It would force any bank to disclose confidential information on US persons in order to avoid penalty taxation. It is another major step of the US super power to enforce its own rules on foreign players without regard for the laws and customs of other countries. In essence, it will be another major step to enforce a worldwide US tax surveillance regime. Or as the law firm Withers remarks in a press release “Give us your tired, your poor, your huddled masses, your names, records of your assets and their values, lists and personal information of your customers, your excess cash holdings, etc. . . .”

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United States: US to Tighten the Noose on Offshore Accounts

“This Bill Offers Foreign Banks a Simple Choice”

  Dec. 02, 2009

Capitol Hill

Behind the technocratic term “Foreign Account Tax Compliance Act 2009” hides yet another round in the hunt for unpaid US-taxes around the globe. After the US government has successfully extracted the names and account data of 5000 UBS customers and re-negotiated the double-taxation treaty with Switzerland and other former offshore destinations, the next law is already in the making.

On October 27, 2009, Senators Max Baucus (Dem-Montana), John Kerry (Dem-Massachusetts) and Representative Charles Rangel (Dem-New York), chairmen of the Congressional tax writing committees, unveiled the Foreign Account Tax Compliance Act of 2009. Under the new bill, foreign financial institutions, foreign trusts, and foreign corporations would be forced into providing information about their US account holders, grantors, and owners.

“This bill offers foreign banks a simple choice – if you wish to access our capital markets, you have to report on U.S. account holders,” said Ways and Means Committee Chairman Rangel. “I am confident that most banks will do the right thing and help to make bank secrecy practices a thing of the past.”

If enacted the Foreign Account Tax Compliance Act would have the following consequences:

  • Impose a 30% withholding tax on payments to foreign banks and other financial institutions unless they reveal the existence of offshore accounts to the US tax authorities and disclose relevant information including account ownership, balances and amounts moving in and out of the accounts.

  • Require individuals and legal entities to report offshore accounts of USD 50,000 or more on their tax returns.

  • Require wealth advisors who help set up offshore accounts to disclose their activities or pay a penalty.

  • Require electronic filing of information reports about withholding on transfers to foreign accounts to enable the US tax authorities to better match reports to tax returns.

  • Strengthen rules and penalties with regard to foreign trusts, including rules to determine whether distributions from foreign trusts are going to US persons and reporting requirements on US transfers to foreign trusts.

  • Clarify the definition of outgoing US dividend payments that are received by foreign persons so they cannot be disguised as other types of distributions in an effort to avoid US taxes.

The information reporting requirement that foreign bank would need to enter into with the US tax authorities in order to avoid the application of the above mentioned 30% withholding tax, would require the bank to disclose information relating to “United States accounts” held by any US person.

In those instances where local bank secrecy or other laws would prevent the disclosure of account information without a waiver by the account holder (such as in the case of Switzerland), the foreign financial institutions will be required to obtain such waivers or close the relevant account.

The independent Joint Committee on Taxation has estimated the provisions of the Foreign Account Tax Compliance Act would prevent U.S. individuals from evading $8.5 billion in U.S. tax over the next ten years. It seems increasingly likely that this bill will be signed into law since it has the full support of the Obama administration. Particularly, Treasury Secretary Tim Geithner has publicly supported the bill.

So far this bill has not made it to the headlines of the international financial community. Yet its impact and repercussions would be profound and change the rules of international finance drastically. In effect, the bill is a unilateral re-writing of tax treaties between the US and many foreign countries. It would force any bank to disclose confidential information on US persons in order to avoid penalty taxation. It is another major step of the US super power to enforce its own rules on foreign players without regard for the laws and customs of other countries. In essence, it will be another major step to enforce a worldwide US tax surveillance regime. Or as the law firm Withers remarks in a press release “Give us your tired, your poor, your huddled masses, your names, records of your assets and their values, lists and personal information of your customers, your excess cash holdings, etc. . . .”