International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Thursday, September 20, 2018

IRC section 871(m) regulations phase in extended (overwithholding - securities lending and sale repurchase agreements)

Consistent with Executive Order 13777 (82 FR 12285), the Treasury Department and the IRS continue to evaluate the section 871(m) regulations and consider possible agency actions that may reduce unnecessary burdens imposed by the regulations. Pending consideration of section 871(m) regulations pursuant to Executive Order 13777, this Notice extends parts of the phase-in period described in both Notice 2017- 42 and Notice 2018-5 through 2020.   Download Reg 871 ext 2018

  • EXTENSION OF THE PHASE-IN YEAR FOR DELTA-ONE AND NON-DELTAONE TRANSACTIONS
  • EXTENSION OF THE SIMPLIFIED STANDARD FOR DETERMINING WHETHER TRANSACTIONS ARE COMBINED TRANSACTIONS
  • EXTENSION OF PHASE-IN RELIEF FOR QUALIFIED DERIVATIVES DEALERS

On June 14, 2010, the Treasury Department and the IRS published Notice 2010-46, which addresses potential overwithholding in the context of securities lending and sale repurchase agreements. Notice 2010-46 provides a two-part solution to the problem of overwithholding on a chain of dividends and dividend equivalents. First, it provides an exception from withholding for payments to a qualified securities lender (QSL). Second, it provides a proposed framework to credit forward prior withholding on a chain of substitute dividends paid pursuant to a chain of securities loans or stock repurchase agreements. The QSL regime requires a person that agrees to act as a QSL to comply with certain withholding and documentation requirements. The Treasury Department and the IRS permitted withholding agents to rely on transition rules described in Notice 2010-46, Part III, until guidance was developed that would include documentation and substantiation of withholding.

On July 18, 2016, the Treasury Department and the IRS published Notice 2016-42, 2016-29 I.R.B. 67, which contained the proposed qualified intermediary agreement (QI Agreement) that included provisions relating to the QDD regime and reiterated the intent to replace the proposed regulatory framework described in Notice 2010-46 with
the QDD regime. On December 19, 2016, the Treasury Department and the IRS published Notice 2016-76, which provided for the phased-in application of certain provisions of the
section 871(m) regulations to allow for the orderly implementation of those final regulations and announced that taxpayers may continue to rely on Notice 2010-46 until January 1, 2018.

On January 17, 2017, the Treasury Department and the IRS published Revenue Procedure 2017-15, 2017-3 I.R.B. 437, which sets forth the final QI Agreement (2017 QI Agreement), including the requirements and obligations applicable to QDDs, and provided that taxpayers may continue to rely on Notice 2010-46 during 2017. On January 24, 2017, the Federal Register published final regulations and temporary regulations (TD 9815, 82 FR 8144) (the 2017 regulations), which finalized the 2015 notice of proposed rulemaking (80 FR 56415) that was issued in conjunction with the 2015 temporary regulations. The effective/applicability dates in the 2017 regulations reflect the phased-in application described in Notice 2016-76.

On August 21, 2017, the Treasury Department and the IRS published Notice 2017-42, 2017-34 I.R.B. 212, which extended certain transition relief. On February 5, 2018, the Treasury Department and the IRS published Notice 2018-5, 2018-6 I.R.B. 341, which permits withholding agents to apply the transition rules from Notice 2010-46 in 2018 and 2019. 

September 20, 2018 in GATCA | Permalink | Comments (0)

Wednesday, September 12, 2018

Simplified registration and collection mechanisms for taxpayers that are not located in the jurisdiction of taxation

This paper reviews and evaluates the efficacy of simplified tax registration and collection mechanisms for securing compliance of taxpayers over which the jurisdiction with taxing rights has limited or no authority to effectively enforce a tax collection or other compliance obligation. The experience in addressing this problem has involved primarily consumption taxes, but the lessons that can be learned from it are applicable as well to other tax regimes that confront the same problem. The best available evidence at present indicates that simplified regimes can work well in practice, achieving a high level of compliance. The paper notes that the adoption of thresholds may be an appropriate solution to avoid imposing a disproportionate administrative burden on small businesses while a good communications strategy is essential to the success of a simplified regime.

September 12, 2018 in GATCA | Permalink | Comments (0)

Tuesday, September 11, 2018

Former Executive of Loyal Bank Ltd Pleads Guilty to Conspiring to Defraud the United States by Failing to Comply with Foreign Account Tax Compliance Act (FATCA)

Earlier today in federal court in Brooklyn, Adrian Baron, the former Chief Business Officer and former Chief Executive Officer of Loyal Bank Ltd, an off-shore bank with offices in Budapest, Hungary and Saint Vincent and the Grenadines, pleaded guilty to conspiring to defraud the United States by failing to comply with the Foreign Account Tax Compliance Act (FATCA).  Baron was extradited to the United States from Hungary in July 2018.  The guilty plea was entered before United States District Judge Kiyo A. Matsumoto.

Richard P. Donoghue, United States Attorney for the Eastern District of New York; Richard E. Zuckerman, Principal Deputy Assistant Attorney General of the Justice Department’s Tax Division; William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI); and James D. Robnett, Special Agent-in-Charge, Internal Revenue Service Criminal Investigation, New York (IRS-CI), announced the guilty plea.  Mr. Donoghue thanked the U.S. Securities and Exchange Commission (SEC), both the New York Regional Office and the Washington, D.C. Office; the City of London Police; the U.K.’s Financial Conduct Authority and the Hungarian National Bureau of Investigation for their significant cooperation and assistance during the investigation.                         

FATCA is a federal law enacted in 2010 that requires foreign financial institutions to identify their U.S. customers and report information (FATCA Information) about financial accounts held by U.S. taxpayers either directly or through a foreign entity.  FATCA’s primary aim is to prevent U.S. taxpayers from using foreign accounts to facilitate the commission of federal tax offenses.               

According to court documents, in June 2017, an undercover agent met with Baron and explained that he was a U.S. citizen involved in stock manipulation schemes and was interested in opening multiple corporate bank accounts at Loyal Bank.  The undercover agent informed Baron that he did not want to appear on any of the account opening documents for his bank accounts at Loyal Bank, even though he would be the true owner of the accounts.  Baron responded that Loyal Bank could open such accounts and provide debit cards linked to them.

In July 2017, the undercover agent again met with Baron and described how his stock manipulation scheme operated, including the need to circumvent the IRS’s reporting requirements under FATCA.  During the meeting, Baron stated that Loyal Bank would not submit a FATCA declaration to regulators unless the paperwork indicated “obvious” U.S. involvement.  Subsequently, in July and August 2017, Loyal Bank opened multiple bank accounts for the undercover agent.  At no time did Baron or Loyal Bank request or collect FATCA Information from the undercover agent. 

Baron’s guilty plea represents the first-ever conviction for failing to comply with FATCA.  When sentenced, Baron faces a maximum of five years in prison.

Baron is the second defendant to plead guilty in this case.  On July 26, 2018, Arvinsingh Canaye, formerly the General Manager of Beaufort Management Services Ltd. in Mauritius, pleaded guilty to conspiracy to commit money laundering. 

The case is being handled by the Office’s Business and Securities Fraud Section.  Assistant United States Attorneys Jacquelyn M. Kasulis, Michael T. Keilty and David Gopstein are in charge of the prosecution.  The Criminal Division’s Office of International Affairs provided significant assistance in this matter.

The Defendant:

ADRIAN BARON
Age: 63
Residence: Budapest, Hungary

September 11, 2018 in GATCA | Permalink | Comments (0)

Tuesday, September 4, 2018

Implementation of Nonresident Alien Deposit Interest Regulations

Revenue Procedure 2018-36 adds two countries – Argentina and Moldova – to the list of countries with which the United States has in force an information exchange agreement such that interest paid to residents of such jurisdictions must be reported by payors to the extent required under Treas. Reg. §§1.6049-8(a) and 1.6049-4(b)(5).  This revenue procedure also adds on jurisdiction, Greece, to the list of jurisdictions with which Treasury and the IRS have determined that it is appropriate to have an automatic exchange relationship with respect to bank deposit interest income information under those regulatory provisions. 

Revenue Procedure 2018-36 will be in IRB: 2018-38, dated 9/17/2018.

September 4, 2018 in GATCA | Permalink | Comments (0)

Friday, August 10, 2018

Justice Department Announces Addendum To Swiss Bank Program Category 2 Non-Prosecution Agreement With Bank Lombard Odier & Co. Ltd.

The Department of Justice announced that it has signed an Addendum to a non-prosecution agreement with Bank Lombard Odier & Co., Ltd., of Zurich Switzerland.  The original non-prosecution agreement was signed on December 31, 2015.  Download Addendum

The Swiss Bank Program, which was announced on August 29, 2013, provided a path for Swiss banks to resolve potential criminal liabilities in the United States relating to offshore banking services provided to United States taxpayers.  Swiss banks eligible to enter the program were required to advise the Department by December 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts.  Swiss banks participating in the program were required to make a complete disclosure of their cross-border activities, provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers had a direct or indirect interest, cooperate in treaty requests for account information, and provide detailed information about the transfer of funds into and out of U.S.-related accounts, including undeclared accounts, that identifies the sending and receiving banks involved in the transactions. 

The Department executed non-prosecution agreements with 80 banks between March 2015 and January 2016.  The Department imposed a total of more than $1.36 billion in Swiss Bank Program penalties, including more than $99 million in penalties from Lombard Odier.  Pursuant to today’s agreement, an addendum to Lombard Odier’s non-prosecution agreement, Lombard Odier will pay to the Department an additional sum of $5,300,000, and will provide to the Department supplemental information regarding its U.S.-related account population, which now includes 88 additional accounts.  

Every bank that signed a non-prosecution agreement in the Swiss Bank Program had represented that it had disclosed all of its U.S.-related accounts that were open at each bank between August 1, 2008, and December 31, 2014.  Each bank also represented that it would, during the term of the non-prosecution agreement, continue to disclose all material information relating to its U.S.-related accounts.  In reaching today’s agreement, Lombard Odier acknowledges that there were certain additional U.S.-related accounts that it knew about, or should have known about, but that were not disclosed to the Department at the time of the signing of the non-prosecution agreement.  Lombard Odier provided early self-disclosure of their unreported U.S.-related accounts and has fully cooperated with the Department.   

“The Department of Justice and Internal Revenue Service have capitalized on information obtained under the Swiss Bank Program to analyze the flow of money of U.S. tax evaders from closed Swiss bank accounts to banks in other countries.  As a result, the Department has learned more about the methods of those who continue to evade their tax obligations and those institutions that assist them,” said Richard E. Zuckerman, Principal Deputy Assistant Attorney General of the Department of Justice’s Tax Division.  “I urge any banks that aided and abetted in these schemes, or that have received money from closed Swiss bank accounts owned or controlled by persons or entities that are U.S. related, to contact the Tax Division and disclose complete and accurate information about these activities before they are contacted by the Division or the IRS.” 

Principal Deputy Assistant Attorney General Zuckerman thanked Trial Attorney Kimberly M. Shartar, who served as counsel on this matter, as well as Senior Counsel for International Tax Matters and Coordinator of the Swiss Bank Program Thomas J. Sawyer, Senior Litigation Counsel Nanette L. Davis, and Attorney Kimberle E. Dodd of the Tax Division.

Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.

August 10, 2018 in GATCA | Permalink | Comments (0)

Thursday, August 9, 2018

The BSA Civil Penalty Regime: Reckless Conduct Can Produce “Willful” Penalties

By   wherein the attorney for Ballad Spahr states: "As noted, the new FBAR opinions (United States v. Markus, from the District of New Jersey, and Norman v. United States, from the U.S. Court of Federal Claims) are merely the latest opinions issued in an ongoing battle between the government and the tax controversy and white collar defense bar regarding the proper definition of “willfulness” for the purposes of the civil FBAR penalty – a penalty which can be very severe (half the value of the undisclosed offshore account, for each year of the violation), and a battle which the government, with some wrinkles, has been winning.  True to this trend, both Markus and Norman find that the IRS properly assessed a willfulness penalty against the taxpayers who previously had undisclosed foreign accounts. What is important for our purposes here is how they describe the willfulness standard."

Read his analysis of these opinions, and their impact on FBAR compliance, penalties, and litigation on his Ballad Spahr blog here.

Jack Townsend's analysis in his blog:

August 9, 2018 in AML, GATCA | Permalink | Comments (0)

Wednesday, August 1, 2018

Justice Department Announces Resolution With Swiss Financial And Asset Management Firm Mirelis Holding S.A.

The Department of Justice announced that Swiss-based Mirelis Holding S.A. reached a resolution with the Tax Division. 

“The agreement reached today demonstrates the Department’s resolve toward ending the practice of using Swiss bank accounts to evade one’s taxes,” said Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division. “The Department will continue to pursue culpable banks and asset management and investment advisory firms that assist U.S. clients in their concealment of assets and the evasion of their U.S. tax obligations.”

According to the terms of the non-prosecution agreement signed today, Mirelis Holding S.A. (formerly known as Mirelis InvestTrust S.A.) agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts, and pay $10.245 million to the United States, in return for the Department’s agreement not to prosecute this entity for tax-related criminal offenses.

Mirelis operated as a Geneva-based securities trading institution licensed by the Swiss Financial Market Supervisory Authority (“FINMA”).  Mirelis was established in 1997 to provide independent portfolio and asset management services following the sale of a minority ownership interest held by Mirelis’s controlling family and associates in Société Bancaire Julius Baer S.A. After its establishment, Mirelis was initially permitted to offer its independent portfolio and asset management services to certain clients of the Geneva branch of Bank Julius Baer & Co. Ltd (which was formerly Société Bancaire Julius Baer S.A.) with whom the employees or officers of Mirelis had a previous relationship. The assets of clients who accepted the offer of Mirelis’s asset management services remained custodied at the Geneva branch of Bank Julius Baer & Co. Ltd. (“Julius Baer”), which has entered into a deferred prosecution agreement with the Department of Justice.  In addition to providing services to individuals and entities based in Switzerland, at all relevant times, Mirelis provided custodial and independent portfolio and asset management services to U.S. taxpayer-clients.

At the end of 2012, Mirelis and Atlas Capital S.A. (“Atlas”), another securities trading institution based in Geneva licensed by FINMA, entered into a share purchase agreement, pursuant to which Mirelis acquired, and subsequently merged with Atlas effective in May of 2013.  Mirelis continued to serve clients as both an independent asset manager and as a custodian until May of 2014 when Mirelis transferred its activities to Hyposwiss Private Bank Genève S.A. (“Hyposwiss”), a Swiss private bank that has entered into a non-prosecution agreement with the Department,  pursuant to a reverse merger and acquisition of Hyposwiss by Mirelis.

During the Applicable Period, August 1, 2008, through December 31, 2014, the aggregate maximum balance of the assets under management of Mirelis’s U.S. taxpayer-clients was in 2008 and was approximately $315 million, consisting of both assets held in custody at Mirelis and assets held at third-party depository institutions.  Mirelis provided custodial account services for approximately 177 U.S. Related Accounts  and portfolio and asset management services to an additional approximately 95 U.S. Related Accounts that were custodied at third-party banks.  Following the transfer of its activities to Hyposwiss in 2014, Mirelis ceased to conduct any of its former activities (including its provision of independent portfolio and asset management services and its custody of client assets) except for the custody of the accounts of 17 U.S. taxpayer-clients on a temporary basis prior to closure.

Since it began its operations, Mirelis was aware that its U.S. taxpayer-clients had a legal duty to report to the IRS, pay taxes on the basis of, all of the income, including income earned in accounts at Mirelis.  Despite being aware of the obligations of its U.S. taxpayer-clients to report to the IRS and pay taxes on income earned in accounts maintained outside of the United States, Mirelis opened, maintained, and serviced accounts for U.S. taxpayer-clients where Mirelis knew or had reason to know that the U.S. taxpayer-clients were not complying with these obligations or were using their accounts outside of the United States to evade U.S. taxes and reporting requirements, filing false tax returns with the IRS, and/or concealing assets maintained outside of the United States from the IRS (hereinafter, “undeclared assets”).

On several occasions, Mirelis facilitated the concealment of U.S. taxpayer-clients’ undeclared accounts through the closure of accounts and transfer of account funds (in whole or in part and temporarily or permanently) to other accounts held at Mirelis where the named account holder and/or beneficial owner were not U.S. persons and may or may not have been related to the U.S. taxpayer-client.

On at least four occasions, in or about 2011 or 2012, Mirelis facilitated the introduction of U.S. taxpayer-clients to the Singapore-based representatives of a trust company, who advised the U.S. taxpayer-clients to create non-U.S. trusts and fund non-U.S. life insurance policies.  Mirelis agreed to accept and effect the transfer of the funds held in the U.S. taxpayer-clients’ accounts pursuant to instructions despite knowing or having reason to know that these U.S. taxpayer-clients were likely to use the advice received from the trust company to conceal their ownership of undeclared assets. The funds were transferred to accounts at a third-party depository financial institution outside of Switzerland in the name of a non-U.S. life insurance company that had issued policies owned by the non-U.S. trusts created by Mirelis’s U.S. taxpayer-clients. Mirelis provided independent portfolio and asset management services for these accounts and listed the account holders and clients as the life insurance company. In all four instances, Mirelis believes that the U.S. taxpayer-clients subsequently entered into an offshore voluntary disclosure program (the “OVDP”) offered by the IRS.

In order to reduce the chances of undeclared accounts being discovered, Mirelis opened and falsely designated at least one account as a non-U.S. account when it knew the account holder was in fact a U.S. person. Prior to August 2008, Mirelis opened an account using the client’s U.S. passport. When this account was closed in 2009, the account holder withdrew all funds in cash. In 2010, Mirelis opened another account for the same client, but this time used the client’s non-U.S. passport. The account documents were completed without mention of the client’s U.S. citizenship, which was then known to Mirelis.

On at least five occasions, Mirelis effected the transfer of funds from one U.S.  Related Account owned or beneficially owned by individual U.S. taxpayer-clients to other U.S. Related Accounts maintained at Mirelis owned by U.S. limited liability companies, which in turn were owned by U.S. trusts with U.S. beneficiaries. The accounts owned by the limited liability companies were all later closed and the custody of their funds transferred to another Swiss bank (a so-called Category 1 bank) while the independent portfolio and asset management services were provided by Mirelis Advisors, a wholly owned subsidiary that is a registered investment adviser with the SEC.  Mirelis effected these transfers without knowing or checking whether the U.S. taxpayer-clients of the original accounts were compliant with their U.S. tax and reporting obligations.

In order to assist U.S. taxpayer-clients for whom Mirelis provided independent portfolio and asset management services, Mirelis agreed to accept custody of at least eight U.S. Related Accounts from Julius Baer, despite knowing that the beneficial owners of such accounts were U.S. taxpayers, that the accounts held undeclared assets, and that the accounts were being terminated by Julius Baer due to the U.S. taxpayer-client’s U.S. citizenship or residency.  Mirelis agreed to accept these accounts at least in part on the assurances of its U.S. taxpayer-clients that they would enter into the OVDP.  Mirelis’s Management Committee put in place a special policy for such accounts requiring the provision of IRS Forms W-9 and waivers of bank secrecy under the QI regime; however, in certain instances, the Form W-9 was not signed or the account did not hold U.S. securities. At least seven of the U.S. taxpayer-clients associated with these accounts ultimately entered into the OVDP.

Even after instituting a policy to only serve U.S. taxpayer-clients in full compliance with U.S. tax and securities laws in 2010, during a transition period of one year, Mirelis continued to provide both custodial and independent portfolio and asset management services to U.S. taxpayer-clients despite knowing or having reason to know that the U.S. taxpayer-clients were not in full compliance with their U.S. tax and information reporting obligations with respect to several accounts maintained at Mirelis and several accounts maintained at third-party banks.

The services provided by Mirelis to its clients also included a number of  traditional Swiss banking services that Mirelis knew or had reason to know could and did in fact assist its U.S. taxpayer-clients in holding undeclared assets, including providing “hold-mail” services whereby Mirelis would hold all account correspondence and statements at its offices until physically retrieved by the client in Switzerland.  In addition, Mirelis provided or assisted in the provision of “numbered” account services whereby the account holder’s name was replaced on all correspondence with just  the account number or a code name even though Mirelis’s internal records would show the name and identity of the account holder.  These services aided in reducing or eliminating paper trails and beneficial ownership information for undeclared accounts and assets of certain of Mirelis’s U.S. taxpayer-clients. 

Mirelis also assisted in the establishment of trusts and entities (collectively, “structures”) for U.S. taxpayer-clients with both accounts maintained at Mirelis and accounts maintained at third-party depository financial institutions, in particular at a Category 1 Bank, by making referrals to known purveyors of such structures both within and outside of Switzerland.  Mirelis knew or had reason to know that these purveyors often operated structures in contravention of corporate formalities and/or Mirelis’s own policies and procedures and that one purpose of these structures was to add an additional layer of nominal ownership to conceal the U.S. taxpayer-clients’ ownership of undeclared accounts.

With respect to at least 24 U.S. Related Accounts maintained by Mirelis, Mirelis obtained or accepted IRS Forms W-8BEN (or substitute self-certification forms) from these entity account holders that falsely indicated the beneficial owner of the undeclared account was the non-U.S. entity itself and not the U.S. taxpayer-client. These false Forms W-8BEN directly contradicted the Swiss Forms A that Mirelis obtained identifying the U.S. taxpayer-clients as the true beneficial owners of the accounts.  Despite knowing that one of the purposes of these arrangements was to further conceal the ownership of undeclared accounts, Mirelis did not contest the claims made on the Forms W-8BEN or equivalent.

With respect to its asset management services to U.S. taxpayer-clients, Mirelis’s responsibility was solely to manage the investment of the assets of the external U.S. taxpayer-clients held on deposit at the third-party financial institutions. Those institutions undertook all other aspects of managing the client relationship, including the responsibility for procuring, updating, and maintaining all “know your customer” and anti-money laundering and terrorism financing information regarding account holder and beneficial owner.

Mirelis, in connection with the due diligence performed following the Atlas acquisition, learned, among other things, that Atlas provided hold mail and numbered account services, assisted in the establishment of structures for U.S. persons, accepted (or did not contest) false IRS Forms W-8BEN regarding the true beneficial ownership of the account; and opened at least 107 accounts in the names of Panamanian corporations in which the beneficial owners were U.S. persons.  Most of those 107 accounts were established by one Swiss attorney. 

Mirelis took remedial steps starting in 2011 with respect to its then-existing U.S. taxpayer-clients, including implementing a new cross-border policy in June 2011, encouraging clients to enter the OVDP, and shifting its declared clients to its then-newly SEC-registered subsidiary, Mirelis Advisors, S.A.

Mirelis submitted a letter of intent to participate as a Category 2 bank in the Department’s Swiss Bank Program in December 2013.  Although it was ultimately determined that Mirelis was not eligible for the Swiss Bank Program due to its structure as both an asset management firm and a bank, Mirelis is required under today’s agreement to fully comply with the obligations imposed under the terms of that program.  Mirelis has fully cooperated with the Department of Justice in this investigation, including undertaking a separate and thorough review of the provision of independent portfolio and asset management services to U.S. taxpayer-clients with accounts maintained at third-party depository financial institutions and encouraging a significant number of its remaining non-compliant U.S. taxpayer-clients to participate, or provide proof of prior participation, in OVDP covering many of the U.S. Related Accounts maintained by Mirelis during the Applicable Period. 

While U.S. account holders at Mirelis who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Program, the price of such disclosure has increased.  Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts.  On Aug. 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement.  With today’s announcement of this non-prosecution agreement, noncompliant U.S. clients of Mirelis must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.  The IRS recently announced that the Offshore Voluntary Disclosure Program will close on September 28, 2018.

Principal Deputy Assistant Attorney General Zuckerman of the Justice Department’s Tax Division thanked the IRS and in particular, IRS-Criminal Investigation and the IRS Large Business & International Division for their substantial assistance.  Principal Deputy Assistant Attorney General Zuckerman also thanked Trial Attorneys Charles M. Duffy and Henry C. Darmstadter, who served as counsel on this matter, as well as Senior Counsel for International Tax Matters and Coordinator of the Swiss Bank Program Thomas J. Sawyer, Senior Litigation Counsel Nanette L. Davis, and Attorney Kimberle E. Dodd.

Attachment(s): Download Mirelies NPA

August 1, 2018 in GATCA | Permalink | Comments (0)

Monday, July 30, 2018

Global Forum on Transparency and Exchange of Information for Tax Purposes: United States 2018 (Second Round)

Peer Review Report on the Exchange of Information on Request
This report contains the 2018 Peer Review Report on the Exchange of Information on Request of United States.

July 30, 2018 in GATCA | Permalink | Comments (0)

Tuesday, July 24, 2018

OECD Concludes CRS Led To EUR 93 Billion Additional Revenue

The OECD reports that as a result of CRS, FATCA, and related transparency efforts, taxpayers are changing their behavior.  As a result of voluntary compliance mechanisms and other offshore investigations put in place since 2009 thanks to the improvements in international tax cooperation, particularly the onset of automatic exchange of information, taxpayers have come forward and disclosed formerly concealed assets and income. By June 2018, jurisdictions around the globe have identified EUR 93 billion in additional revenue (tax, interest, penalties) from such initiatives.  Download Oecd-secretary-general-tax-report-g20-finance-ministers-july-2018

July 24, 2018 in GATCA | Permalink | Comments (0)

Sunday, July 22, 2018

Justice Department Announces Resolution With NPB Neue Privat Bank AG

The Department of Justice announced that NPB Neue Privat Bank (NPB) reached a resolution with the Tax Division.  NPB will pay a penalty of $5 million.

“The Department of Justice is committed to ending the practice of using foreign bank accounts to evade taxes,” said Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division. “Taxpayers and financial institutions should take notice that the Department is continuing to aggressively pursue these cases.”

According to the terms of the non-prosecution agreement signed today, NPB agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay a penalty in return for the Department’s agreement not to prosecute this bank for tax-related criminal offenses.

NPB is a Swiss private bank based in Zurich, Switzerland.  Until 2012, NPB conducted a U.S. cross-border banking business that aided and assisted certain of its U.S. clients in opening and maintaining undeclared accounts in Switzerland and concealing the assets and income they held in these accounts from the U.S. government. NPB offered a variety of traditional Swiss banking services that it knew could assist, and did in fact assist, U.S. clients in the concealment of assets and income from the IRS, including the use of numbered accounts and hold mail services. 

NPB signed agreements with individual external asset managers or external asset management firms, whereby clients of the external asset manager could open and maintain accounts at NPB, with account management services being provided by the external asset manager. Almost all of NPB’s U.S. accounts were managed by external asset managers, for whom it provided custodial and limited banking services. In such cases, NPB generally did not contact the clients directly once they had opened their account. The Bank required an external asset manager mandate, so that communication about asset management and investment decisions were done between the U.S. customer and their external asset manager(s). In a few circumstances, NPB managed U.S. customers directly without an external asset manager. In those cases, the Bank required the U.S. customer to sign a direct asset management mandate, allowing the Bank to make investment decisions for the account. 

In 2001, NPB entered into a Qualified Intermediary Agreement (QI Agreement) with the Internal Revenue Service (IRS).  The Qualified Intermediary regime provided a comprehensive framework for U.S. information reporting and tax withholding by a non-U.S. financial institution with respect to U.S. securities. The QI Agreement required NPB to obtain IRS Forms W-9 and to undertake IRS Form 1099 reporting for new and existing U.S. clients engaged in U.S. securities transactions.  Notwithstanding this requirement, NPB chose to continue to service U.S. clients without disclosing their identity to the IRS.  NPB’s view was that it could continue to accept and service U.S. account holders, even if it knew or had reason to believe they were engaged in tax evasion, so long as it complied with the QI Agreement, which in NPB’s view did not apply to account holders who were not trading in U.S.-based securities or to accounts that were nominally structured in the name of a non-U.S.-based entity.  NPB formed this view without consulting legal counsel. 

Between August 1, 2008 and December 31, 2015, NPB held a total of 353 U.S.-related accounts, which included both declared and undeclared accounts, with an aggregate peak year-end value of approximately $400 million in assets under management.

In approximately early 2009, NPB was approached by certain external asset managers who managed accounts on behalf of U.S. taxpayers and were seeking a replacement custodian bank for accounts for U.S. taxpayers that were being closed by other Swiss banks, including UBS AG.  Some of these external asset managers and NPB discussed the long-term trend towards tax compliance in Switzerland and that eventually the external asset managers would only be able to manage accounts that were declared to the U.S. government. Those external asset managers told NPB that they were telling their clients to become tax compliant. However, the external asset managers also made clear to NPB that many of their clients who wished to onboard accounts at the Bank had not yet declared their accounts to the U.S. government. The external asset managers did not promise, and NPB did not require, that all accounts onboarded to NPB would become compliant within a specific period of time. In one instance, however, an external asset manager onboarded accounts from other Swiss banks that the Bank knew were undeclared with no discussion of tax compliance until 2011.

NPB viewed the taking of clients from other banks that were exiting U.S. taxpayers as a business opportunity. During a board of directors meeting held on March 9, 2009, the board unanimously resolved that it would allow U.S. taxpayers to open accounts at NPB, including customers who were forced to exit other banks.  Prior to 2009, NPB had few U.S. clients. At the close of 2008, U.S. Related Accounts held approximately 8 million Swiss francs in assets.  By the end of 2009, NPB had approximately 450 million Swiss francs under management in accounts owned or beneficially owned by U.S. taxpayers, an influx of approximately 442 million Swiss Francs.  Approximately 69% of the U.S.-related assets held by the Bank at the end of 2009 were reported to the U.S. government by the account holder in or before the 2009 tax year.

NPB’s executives hoped that their U.S. customers would eventually fully declare their accounts and keep their money at the Bank after becoming compliant. However, NPB created no written or formal policies to encourage or mandate tax compliance and, in fact, continued to acquire and service non-compliant U.S. taxpayers.

According to NPB executives, beginning in August 2010, NPB decided not to open any new accounts for U.S. customers who were not tax-compliant. NPB did not memorialize this decision in any written policy nor in any executive board or management board meeting minutes. NPB knew in August 2010 that some of its existing U.S. customers were not tax-compliant, but continued to service those accounts. 

Until at least August 2010, NPB did not require a Form W-9 from U.S. clients to open an account.  NPB did not require the completion of Forms W-9 for existing U.S. customers until approximately summer of 2011.

NPB serviced some U.S. customers who structured their accounts so that they appeared as if they were held by a non-U.S. legal structure, such as an offshore corporation or trust, which aided and abetted the clients’ ability to conceal their undeclared accounts from the IRS. At least 89 of NPB’s U.S. Related Accounts, both declared and undeclared, were held in the name of offshore structures, including trusts or corporations purportedly domiciled in Panama, Liechtenstein, the British Virgin Islands, Hong Kong, and Belize.  NPB never assisted customers in setting up such offshore structures.  For accounts held in non-U.S. legal structures opened in 2009 and prior to Summer 2010, NPB did not require the signing of either a Form W-9 or Form W-8BEN.

NPB increased its efforts to obtain tax compliance from its U.S. customers in 2010 and 2011, but continued to service undeclared accounts.  NPB first requested tax compliance evidence from its external asset managers for U.S. clients in August 2011.  NPB serviced the declared and undeclared clients of two external asset managers after their respective indictments in the United States. 

NPB has cooperated with the Department of Justice in this investigation, including by producing information relating to the U.S. taxpayer clients who maintained assets overseas, including the identities of the account holders and/or beneficial owners of more than 88% of assets, and by making multiple executives available for interview by the Department of Justice.

While U.S. accountholders at NPB who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Program, the price of such disclosure has increased.  Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts.  On Aug. 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement.  With today’s announcement of this non-prosecution agreement, noncompliant U.S. accountholders at NPB must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.  The IRS recently announced that the Offshore Voluntary Disclosure Program will close on September 28, 2018.

“The non-prosecution agreement with NPB should signal that IRS CI continues its fight against offshore tax evasion,” said Don Fort, Chief IRS-Criminal Investigation. “The IRS devotes considerable resources in the U.S. and abroad to hold accountable those individuals and institutions that seek to cheat the U.S. tax system. I urge anyone not compliant with their tax obligations to consider the offshore voluntary disclosure program before it closes on September 28, 2018.”

Principal Assistant Attorney General Zuckerman of the Justice Department’s Tax Division thanked Senior Litigation Counsel Nanette Davis of the Tax Division and Assistant United States Attorneys Michelle Petersen and Patrick King of the U.S. Attorney’s Office for the Northern District of Illinois and IRS-Criminal Investigation, in particular IRS Special Agent Michael Leach, for their substantial assistance. 

Attachment(s): 

July 22, 2018 in GATCA | Permalink | Comments (0)

Wednesday, July 18, 2018

Major enlargement of the global network for the automatic exchange of offshore account information as over 100 jurisdictions get ready for exchanges

The OECD published a new set of bilateral exchange relationships established under the Common Reporting Standard Multilateral Competent Authority Agreement (CRS MCAA).

In total, the international legal network for the automatic exchange of offshore financial account information under the CRS now covers over 90 jurisdictions, with the remaining dozen set to follow suit over summer. The network will allow over 100 committed jurisdictions to exchange CRS information in September 2018 under more than 3200 bilateral relationships that are now in place, an increase of over 500 since April of 2018. All 124 participating jurisdictions are due to exchange CRS information in September 2018.

The full list of automatic exchange relationships* that are currently in place under the CRS MCAA is available online.

The last two months have also been marked by a significant increase of jurisdictions participating in the multilateral Convention on Mutual Administrative Assistance in Tax Matters, which is the prime international instrument for all forms of exchange of information in tax matters, including the exchange upon request, as well as the automatic exchange of CRS information and Country-by-Country Reports.

Since early May, the Former Yugoslav Republic of Macedonia, Grenada, Hong Kong (China), Liberia, Macau (China), Paraguay and Vanuatu have joined the Convention, bringing the total number of participating jurisdictions to 124. In addition, The Bahamas, Bahrain, Grenada, Peru and the United Arab Emirates have deposited their instruments of ratification.

These recent developments show that jurisdictions are now completing the final steps for being able to commence CRS exchanges by September 2018, therewith delivering on their commitment made at the level of the G20 and the Global Forum.

July 18, 2018 in GATCA | Permalink | Comments (0)

Friday, July 13, 2018

DESPITE SPENDING NEARLY $380 MILLION, THE INTERNAL REVENUE SERVICE IS STILL NOT PREPARED TO ENFORCE COMPLIANCE WITH THE FOREIGN ACCOUNT TAX COMPLIANCE ACT

IMPACT ON TAXPAYERS

The U.S. Congress intended the Foreign Account Tax Compliance Act (FATCA) to improve U.S. taxpayer compliance with reporting foreign financial assets and offshore accounts.  Under the FATCA, individual taxpayers with specified foreign financial assets that meet a certain dollar threshold should report this information to the IRS, beginning with Tax Year 2011, by filing Form 8938, Statement of Specified Foreign Financial Assets, with their income tax return. 

To avoid being subject to withholding, the FATCA also requires foreign financial institutions (FFI) to register and agree to report to the IRS certain information about financial accounts held by U.S. taxpayers or held by foreign entities in which U.S. taxpayers hold a substantial ownership interest. 

WHY TIGTA DID THE AUDIT

This audit was initiated to evaluate the IRS’s efforts to ensure that taxpayers, the FFIs, and withholding agents comply with the FATCA.

WHAT TIGTA FOUND

TIGTA determined that, despite spending nearly $380 million, the IRS has taken limited or no action on a majority of the planned activities outlined in the FATCA Compliance Roadmap.

The reports filed by the FFIs did not include (or included invalid) Taxpayer Identification Numbers (TIN).  As a result, the IRS’s efforts to match FFI and individual taxpayer data were unsuccessful, which affected the IRS’s ability to identify and enforce FATCA requirements for individual taxpayers.

Also, the IRS only recently initiated action to enforce withholding agent compliance with the FATCA after TIGTA provided feedback.  TIGTA observed that a significant percentage of the Forms 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, the IRS receives that pertain to the FATCA do not have valid TINs.  However, most Form 1099 series information returns pertaining to the FATCA do have valid TINs and can be used by the IRS in its FATCA compliance strategies.  There were 62,398 Tax Year 2015 Forms 1042-S with invalid TINs reporting more than $717 million, of which just over $47 million was withheld.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the IRS:  1) establish follow-up procedures and initiate action to address error notices related to file submissions rejected by the International Compliance Management Model; 2) initiate compliance efforts to address taxpayers who did not file a Form 8938 but who were reported on a Form 8966 filed by an FFI; 3) add guidance to the Form 8938 instructions to inform taxpayers on how to use the FFI List Search and Download Tool on the IRS’s website; 4) initiate compliance efforts to address and correct missing or invalid TINs on Form 8966 filings by non-IGA FFIs and Model 2 IGA FFIs; 5) expand compliance efforts to address and correct the invalid TINs on all Form 1042-S filings by non-IGA FFIs and Model 2 IGA FFIs; and 6) initiate compliance efforts to compare Form 1099 filings with valid TINs to corresponding Form 8938 filings.

The IRS agreed with four of TIGTA’s six recommendations.  Corrective actions include:  1) establishing follow-up procedures and initiating action on error notices with the FFIs; 2) continuing efforts to systemically match Form 8966 and Form 8938 data to identify nonfilers and underreporting related to U.S. holders of foreign accounts and to the FFIs; 3) informing taxpayers how to obtain global intermediary numbers; and 4) strengthening overall compliance efforts directed toward improving the accuracy of reporting by Form 1042-S filers.

READ THE FULL REPORT

To view the report, including the scope, methodology, and full IRS response, go to:

https://www.treasury.gov/tigta/auditreports/2018reports/201830040fr.pdf.

July 13, 2018 in GATCA | Permalink | Comments (0)

Wednesday, July 11, 2018

Canada Offshore Audits Result is Penalties and Tax Collections

Based on international audits completed between 2014 to 2015 and 2016 to 2017, almost $1 billion in income was uncovered and assessed from 370 individuals, 200 corporations and a small number of trusts. The additional tax identified was $284 million. Of this, 23% was attributed to individuals and 77% to corporations and trusts linked to those corporations.

The Government of Canada is working to ensure a tax system that is fair for all Canadians. Building on that commitment, today the Honourable Diane Lebouthillier, Minister of National Revenue, announced the release of the fourth study of the tax gap in Canada which focuses on individuals’ international income tax compliance.   Download Canada Offshore CRA report

The approach of the study is based on methodologies developed by international experts. According to the most recent study, the estimate for the offshore investment tax gap for individuals was between $0.8 billion and $3 billion in 2014, or between 0.6% and 2.2% of individual income tax revenue. Canada is the first G7 country to study the offshore tax gap. In previous studies, the tax gaps for personal income tax and the federal portion of the goods and services tax / harmonized sales tax were estimated at up to $14.6 billion in 2014.

The studies conducted to date underline the importance of examining not only individuals, but also their related entities when investigating non-compliance. The Government of Canada's recent Budget 2016, 2017, and 2018 investments in the fight against tax evasion and aggressive tax avoidance will further support this approach and promote enhanced information sharing among the Canada Revenue Agency (Agency) and its international partners.

With these investments, the Government is delivering better data, better approaches and better results. Furthermore, the Agency has the capacity to leverage new global collaboration and data sharing to crack down on tax cheating.

New approaches include being able to automatically access and review all international electronic funds transfers over $10,000 entering or leaving the country, allowing us to better risk assess individuals and businesses. The Agency has also improved its audit capacity to focus on high net worth taxpayers and thanks to the Common Reporting Standard is gaining easier access to information on Canadians’ overseas bank accounts.

The Agency's next tax gap study will be released in 2019 and will focus on incorporated businesses.

 

Quotes

"Most Canadians pay their fair share of taxes. They expect their government to do all it can to pursue people and businesses that try to avoid doing the same. This latest study of the tax gap is evidence of our Government's ongoing commitment to better target international tax evasion and aggressive tax avoidance."

– The Honourable Diane Lebouthillier, Minister of National Revenue

Quick facts

  • The Agency describes the tax gap as the difference between the taxes that would be paid if all obligations were fully met in all cases and the taxes that are actually received and collected.

  • Each year, the CRA processes about 29 million income tax and benefit returns and assesses about $180 billion in individual federal income taxes.

  • Based on international audits completed between 2014 to 2015 and 2016 to 2017, almost $1 billion in income was uncovered and assessed from 370 individuals, 200 corporations and a small number of trusts. The additional tax identified was $284 million. Of this, 23% was attributed to individuals and 77% to corporations and trusts linked to those corporations.

  • In 2014, about $429 billion in assets, $9 billion in foreign income and $13 billion in capital gains were reported. Top countries where assets were held and foreign income was reported tended to be the U.S. and the U.K.

  • Canada is one of over 65 nations sharing Country-by-Country Reports (CbCRs). CbCRs provide automatic access to information about multinational corporations’ activities in every country they operate in, giving us a deeper understanding of the operations of these large companies.

  • This year, we are also gaining easier access to information on Canadians’ overseas bank accounts, with the implementation of the Common Reporting Standard. With this new system, Canada and close to 100 other countries will begin exchanging financial account information. This information will help us connect the dots and identify instances where Canadians hide money in offshore accounts to avoid paying taxes.

Associated links

July 11, 2018 in GATCA, Tax Compliance | Permalink | Comments (0)

Tuesday, July 10, 2018

Joint Chiefs of Global Tax Enforcement

Combatting transnational tax crime and money laundering through increased enforcement collaboration

The Joint Chiefs of Global Tax Enforcement (known as the J5) are committed to combatting transnational tax crime through increased J5 Tax Enforcementenforcement collaboration. We will work together to gather information, share intelligence, conduct operations and build the capacity of tax crime enforcement officials.

The J5 comprises the Australian Criminal Intelligence Commission (ACIC) and Australian Taxation Office (ATO), the Canada Revenue Agency (CRA), the Fiscale Inlichtingen- en Opsporingsdienst (FIOD), HM Revenue & Customs (HMRC), and Internal Revenue Service Criminal Investigation (IRS-CI).

We are convinced that offshore structures and financial instruments, where used to commit tax crime and money laundering, are detrimental to the economic, fiscal, and social interests of our countries. We will work together to investigate those who enable transnational  tax crime and money laundering and those who benefit from it. We will also collaborate internationally to reduce the growing threat to tax administrations posed by cryptocurrencies and cybercrime and to make the most of data and technology.

What We Do

To actively bring about change, the J5 will:

  • Develop shared strategies to gather information and intelligence that will strengthen operational cooperation in matters of mutual interest, and target those who seek to commit transnational tax crime,  cybercrime and launder the proceeds of crime
     
  • Drive strategies and procedures to conduct joint investigations and disrupt the activity of those who commit transnational tax crime, cybercrime, and also those who enable and assist money laundering
     
  • Collaborate on effective communications that reinforce that J5 is working together  to tackle transnational tax crime, cybercrime and money laundering.

Results

The outcome of this active collaboration will see the J5:

  • Enhance existing investigation and intelligence programs
  • Identify significant targets for new investigations
  • Improve the tactical intelligence threat picture now and into the future
  • Lead the wider community in developing its strategic understanding of the methods, weaknesses and risks from offshore tax crime and cybercrime
  • Raise international awareness that the J5 is working together to reduce  transnational tax crime, cybercrime and money laundering, and create uncertainty for those who seek to commit such offenses.
The J5 was formed in response to the OECD’s call to action for countries to do more to tackle the enablers of tax crime. The J5 works collaboratively with the OECD and other countries and organisations where appropriate.

July 10, 2018 in GATCA | Permalink | Comments (0)

Friday, July 6, 2018

Major enlargement of the global network for the automatic exchange of offshore account information as over 100 jurisdictions get ready for exchanges

The OECD published a new set of bilateral exchange relationships established under the Common Reporting Standard Multilateral Competent Authority Agreement (CRS MCAA).

In total, the international legal network for the automatic exchange of offshore financial account information under the CRS now covers over 90 jurisdictions, with the remaining dozen set to follow suit over summer. The network will allow over 100 committed jurisdictions to exchange CRS information in September 2018 under more than 3200 bilateral relationships that are now in place, an increase of over 500 since April of this year.

The full list of automatic exchange relationships* that are currently in place under the CRS MCAA is available online.

The last two months have also been marked by a significant increase of jurisdictions participating in the multilateral Convention on Mutual Administrative Assistance in Tax Matters, which is the prime international instrument for all forms of exchange of information in tax matters, including the exchange upon request, as well as the automatic exchange of CRS information and Country-by-Country Reports.

Since early May, the Former Yugoslav Republic of Macedonia, Grenada, Hong Kong (China), Liberia, Macau (China), Paraguay and Vanuatu have joined the Convention, bringing the total number of participating jurisdictions to 124. In addition, The Bahamas, Bahrain, Grenada, Peru and the United Arab Emirates have deposited their instruments of ratification.

These recent developments show that jurisdictions are now completing the final steps for being able to commence CRS exchanges by September 2018, therewith delivering on their commitment made at the level of the G20 and the Global Forum.

July 6, 2018 in GATCA | Permalink | Comments (0)

Tuesday, July 3, 2018

Will 2018Q4 see you ‘helping the authorities with their enquiries’? Guest Post by Haydon Perryman

Author Haydon Perryman may be contacted here via his website 

“Our FATCA compliance was complete some time ago; our CRS compliance is almost complete too.”

This is the kind of complacent, almost nonchalant, phrase heard rolling off the tongue of many a Compliance and Risk Officer.

While almost no Financial Institution is close, or anywhere near to close to FATCA and CRS compliance, because there has been a noticeable absence of enforcement in many jurisdictions, the industry is in the first stage of the Kübler-Ross model (otherwise known as the five stages of grief): (denial) apparently without consequence. Some have moved onto the third stage ‘bargaining’ with an interpretation of these regulations that can best be described as ‘entirely their own’.

 Many have not made the connection between

  • FATCA and the CRS,
  • two new offences introduced by the UK Criminal Finances Act 2017 (making it easier for HMRC to secure a conviction),
  • the extra-territorial nature of the UK Criminal Finances Act:
    • it applies to market participants worldwide and
    • applies to both evasion of UK taxes and also tax evasion worldwide
  • the EU and OECD ‘mandatory disclosure regime’ and
  • the closure of the US IRS Offshore Voluntary Disclosure Program[1] on 28th September 2018 (which required 56,000 taxpayers looking to avoid prosecution to give full disclosure to the US IRS of the names of banks and employees who allegedly facilitate tax evasion via offshore accounts).

A common practice of Change Managers is to categorise Compliance Programmes[2] as either Red, Amber or Green. Just like road traffic, Green indicates that all is well.

Because FATCA and CRS have seen little in the way of direct enforcement, it has become de rigueur to report FATCA and CRS as green (regardless of the actual level of FATCA and CRS compliance).

Consequently, we see in the industry an archipelago of FATCA and CRS programmes masquerading as green. In truth, these are what some in Change Management refer to as "Water Melons," i.e. green on the outside but red when you look into them.

So, the finance industry regards something it does not understand as safe and allows the problem to expand until it manifests itself as extremely dangerous. Déjà vu?

What market participant would want to state that the Emperor has no clothes, or rather, that it is significantly non-compliant with FATCA and CRS? It would be a pariah to its peers and may call unwelcome regulatory attention upon itself.

Perhaps many believe the regulator is a paper-tiger when it comes to FATCA/CRS enforcement on Financial Institutions. FATCA has been ‘in force’ since July 2014 but has been enforced never. (The Swiss banks that were penalised up to the end of 2016 were not penalised as a direct result of Title V of the HIRE Act aka ‘FATCA’.)

While the industry was content to regard the regulator as toothless, it looked away as the regulator sharpened its claws. Very few have linked this lack of enforcement and the new strict liability criminal offences for tax evasion with an offshore element applying from the 2017/18 tax year.

It is now far easier for Host Country Tax Authorities to secure a criminal conviction. Has there really been a lack of enforcement or have Host Country Tax Authorities silently made it much easier to hit their prosecution targets?

This applies not only to the evasion of UK taxes but tax evasion worldwide.

Meanwhile the EU and OECD have introduced the ‘mandatory disclosure regime’ to tackle tax evasion ‘head on’.

Some may still perceive that they have little to fear. They may be reassured by various internal reports that indicate that there are no ‘weeds in the garden’ (just plenty of fine greenery). Maybe those reports indicate that there were ‘weeds in the garden' but that those weeds have long since been permanently dispatched leaving nothing but a beautiful vista of lush green of various hues.

Perhaps in private many realise that despite the printer toners continuously having to be replaced because of the lavish application of green ink, that all is not as leafy green as it appears. But then, how would the regulator know that their particular institution is other than compliant? Isn’t there safety in numbers?

In IGA countries, some take solace in that unlike the US Treasury version of FATCA, the IGA Model 1 version of FATCA has no concept of the Responsible Officer and that Financial Institutions in IGA Model 1 jurisdictions, are not required to Certify FATCA compliance directly to the US IRS.

However, some see the clever twist that the IRS wrote into the plot via the Qualified Intermediary regime. If the Financial Institution is a Qualified Intermediary (QI) in an IGA country, the QI must make Certifications to the US IRS concerning, among other things, compliance with the local law implementing FATCA. The Financial Institution is almost never in compliance with this local-law, but it appears a great many seem not to know or are content to pretend not to know.

With so many in the industry celebrating at the well-attended, first stage of grief party, what could go wrong?

The volume of data is so vast that surely the tax authorities cannot isolate your particular institution, right? Surely if everyone just continues to drink the champagne, no one will ever have a headache?

On a sober note, the US IRS closes its OVDP (Offshore Voluntary Disclosure Program) on 28th September 2018. Since 2009 it has brought in $11.1 billion and disclosures from more than 56,000 taxpayers. These disclosures included the names of Financial Institutions and the names of employees who allegedly failed to prevent the facilitation of tax evasion via offshore accounts. (Now a Criminal Offence.)

This means that the US IRS knows precisely who has been doing what, where, how and when.

The US IRS is known to want to see visible FATCA enforcement and is known to be disappointed by the lack of enforcement thus far. 

Tax Authorities are known to be under pressure to hit prosecution targets, particularly concerning the failure to prevent the facilitation of tax evasion.

So now all the US IRS has to do is close the OVDP on 28th September and, in due course, pass on what it knows to Host Country Tax Authorities.

Naturally, Host Country Tax Authorities will realise that the same institutions that allegedly failed to prevent the facilitation of tax evasion pertaining to US citizens will in all likelihood have the same proclivity when it comes to non-US citizens.

Armed with this information and with new Criminal Offences that make it considerably easier to secure a conviction, Host Country Tax Authorities will find it difficult to miss any target. To coin a phrase: it will be like ‘shooting fish in a barrel’.

Many a surprised individual will be helping the authorities with their enquiries concerning what is now a criminal offence.

Will 2018Q4 see you ‘helping the authorities with their enquiries’?

 Author Haydon Perryman may be contacted here via his website 

[1] Use of American spelling due to the programme being managed in the USA.

[2] Use of British spelling due to this paper being written in the UK.

July 3, 2018 in GATCA | Permalink | Comments (0)

Saturday, May 26, 2018

FATCA Legislation and its Application at International and EU Level

This study commissioned by the European Parliament’s Policy Department for Citizens’ Rights and Constitutional Affairs at the request of the PETI Committee, analyzes FATCA legislation and its application at international and EU level: it first provides a global overview on exchange of tax information and of the FATCA mechanisms applied through intergovernmental agreements. The study then describes the extraterritorial nature and negative externalities of FATCA, in particular its impact on U.S. citizens abroad and the potential conflicts with EU law, with specific attention to the right of FATCA data protection under the GDPR. It concludes with suggestions for bilateral and unilateral EU-U.S. policies, with final remarks on a multilateral approach.

Download IPOL_STU(2018)604967_EN

 

May 26, 2018 in GATCA | Permalink | Comments (0)

Wednesday, May 9, 2018

At least 80% of Australian "Caught" for Swiss Bank Accounts Found Compliant Thus Far

Australia's Turnbull Government is committed to uncovering anyone who seeks to mask the true nature of their tax affairs.  More than 100 Australians with links to Swiss banking relationship managers alleged to have actively promoted and facilitated tax evasion schemes have been identified as 'high risk' and requiring further investigation by the Australian Taxation Office (ATO).  The Minister for Revenue and Financial Services, the Hon Kelly O'Dwyer MP, confirmed 578 Australians were identified by the ATO working with other Serious Financial Crime Taskforce (SFCT) agencies in March 2017 as holding unnamed numbered accounts with a Swiss bank, following a joint international investigation.

"While the ATO has found the majority of Australians identified in the data to have complied with their tax obligations, a range of immediate compliance actions are being taken against 106 taxpayers, and one is under assessment by the Government's cross-agency Serious Financial Crime Taskforce," Minister O'Dwyer said.  "The ATO is investigating whether those taxpayers are using a sophisticated system of numbered accounts to conceal and transfer wealth anonymously to evade their tax obligations in Australia."

In working with AUSTRAC, the ATO has identified these 106 taxpayers have had 5,000 cross-border transactions worth over $900 million in the past 10 years. These transactions range from as little as $25 and up to $24 million.

"This is another reminder to those who devise, promote or participate in tax evasion schemes that their time is up."

Just last month we saw Michael Issakidis sentenced to more than 10 years' jail for his role in the largest prosecuted tax fraud case in Australia's history. His co-conspirator Anthony Dickson is also in jail for 14 years for his part in the same crime.

"Taxpayers can't expect to be able to hide their tax affairs offshore."

Information releases are becoming more regular with the ATO and other government agencies receiving large data sets reasonably regularly. The ATO constantly receives intelligence from a range of sources which they cross-match against existing intelligence holdings through their 'smarter data' technology.

Australia also has a well-established network of treaty partners who the ATO works collaboratively with to share intelligence on advisers and taxpayers on offshore tax evasion.

This network is crucial in allowing the ATO to collect information about individual taxpayers' offshore activities, as demonstrated by the Panama Papers and Paradise Papers.

The SFCT comprises the Australian Federal Police, ATO, Attorney General's Department, Australian Criminal Intelligence Commission, Australian Border Force, Commonwealth Department of Public Prosecutions and the Australian Securities and Investments Commission.

"I encourage anyone who believes they may have undeclared offshore income to come forward and contact the ATO to make a voluntary disclosure," Minister O'Dwyer concluded.

May 9, 2018 in GATCA | Permalink | Comments (0)

Thursday, April 12, 2018

Global Forum issues tax transparency compliance ratings for nine jurisdictions as membership rises to 150

The Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) published today nine peer review reports assessing compliance with international standards on tax transparency.

Eight of these reports assess countries against the updated standards which incorporate beneficial ownership information of all legal entities and arrangements, in line with the Financial Action Task Force international definition. 

Four jurisdictions – EstoniaFranceMonaco and New Zealand –  received an overall rating of “Compliant.” Three others – The BahamasBelgium and Hungary were rated “Largely Compliant.” Ghana was rated “Partially Compliant.”

Progress for Jamaica were recognised through a Supplementary Report which attributes a “Largely Compliant” rating.

The Global Forum now includes 150 members on an equal footing as Montenegro has just joined the international fight against tax evasion. Members of the Global Forum already include all G20 and OECD countries, all international financial centres and many developing countries.

The Global Forum also runs an extensive technical assistance programme to provide support to its members in implementing the standards and helping tax authorities to make the best use of cross-border information sharing channels.

For additional information on the Global Forum peer review process, and to read all reports to date, go to: http://www.oecd-ilibrary.org/taxation/global-forum-on-transparency-and-exchange-of-information-for-tax-purposes-peer-reviews_2219469x.

April 12, 2018 in GATCA | Permalink | Comments (0)

Tuesday, April 10, 2018

OECD releases new edition of the CRS Implementation Handbook

The OECD published a new set of bilateral exchange relationships established under the Common Reporting Standard Multilateral Competent Authority Agreement (CRS MCAA) which for the first time includes activations by Panama.

In total, there are now over 2700 bilateral relationships for the automatic exchange of offshore financial account information under the CRS in place across the globe. The full list of automatic exchange relationships that are currently in place under the CRS MCAA is available online. A further update is expected to be published in May.

The OECD today also released the second edition of the Common Reporting Standard Implementation Handbook.

The Handbook provides practical guidance to assist government officials and financial institutions in the implementation of the CRS and to provide a practical overview of the CRS to both the financial sector and the public at-large.

Changes reflected in this second edition of the Handbook offer further guidance on the features of the legal framework of the CRS, data protection aspects, IT and administrative requirements as well as on measure to ensure compliance with the CRS. It also expands the trust section in relation to the identification of Controlling Persons and includes all frequently asked questions in relation to the CRS that have so far been issued by the OECD.

April 10, 2018 in GATCA | Permalink | Comments (0)