International Financial Law Prof Blog

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

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)

Wednesday, March 14, 2018

IRS to end offshore voluntary disclosure program

The Internal Revenue Service today announced it will begin to ramp down the 2014 Offshore Voluntary Disclosure Program (OVDP) and close the program on Sept. 28, 2018. By alerting taxpayers now, the IRS intends that any U.S. taxpayers with undisclosed foreign financial assets have time to use the OVDP before the program closes. 

“Taxpayers have had several years to come into compliance with U.S. tax laws under this program,” said Acting IRS Commissioner David Kautter. “All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so.”

Since the OVDP’s initial launch in 2009, more than 56,000 taxpayers have used one of the programs to comply voluntarily. All told, those taxpayers paid a total of $11.1 billion in back taxes, interest and penalties. The planned end of the current OVDP also reflects advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations.

The number of taxpayer disclosures under the OVDP peaked in 2011, when about 18,000 people came forward. The number steadily declined through the years, falling to only 600 disclosures in 2017.

The current OVDP began in 2014 and is a modified version of the OVDP launched in 2012, which followed voluntary programs offered in 2011 and 2009. The programs have enabled U.S. taxpayers to voluntarily resolve past non-compliance related to unreported foreign financial assets and failure to file foreign information returns.

Tax Enforcement

The IRS notes that it will continue to use tools besides voluntary disclosure to combat offshore tax avoidance, including taxpayer education, Whistleblower leads, civil examination and criminal prosecution. Since 2009, IRS Criminal Investigation has indicted 1,545 taxpayers on criminal violations related to international activities, of which 671 taxpayers were indicted on international criminal tax violations.

“The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts with the use of information resources and increased data analytics,” said Don Fort, Chief, IRS Criminal Investigation. “Stopping offshore tax noncompliance remains a top priority of the IRS.”

Streamlined Procedures and Other Options

A separate program, the Streamlined Filing Compliance Procedures, for taxpayers who might not have been aware of their filing obligations, has helped about 65,000 additional taxpayers come into compliance. The Streamlined Filing Compliance Procedures will remain in place and available to eligible taxpayers. As with OVDP, the IRS has said it may end the Streamlined Filing Compliance Procedures at some point.

The implementation of the Foreign Account Tax Compliance Act (FATCA) and the ongoing efforts of the IRS and the Department of Justice to ensure compliance by those with U.S. tax obligations have raised awareness of U.S. tax and information reporting obligations with respect to undisclosed foreign financial assets.  Because the circumstances of taxpayers with foreign financial assets vary widely, the IRS will continue offering the following options for addressing previous failures to comply with U.S. tax and information return obligations with respect to those assets:

  • IRS-Criminal Investigation Voluntary Disclosure Program;
  • Streamlined Filing Compliance Procedures;
  • Delinquent FBAR submission procedures; and
  • Delinquent international information return submission procedures.  

Full details of the options available for U.S. taxpayers with undisclosed foreign financial assets can be found on IRS.gov.

March 14, 2018 in GATCA | Permalink | Comments (0)

Monday, March 5, 2018

Update on Jurisdictions Included on the IRS List of Jurisdictions That Do Not Issue Foreign TINs

Notice 2018-20

 

I.          PURPOSE

     This notice announces that the Internal Revenue Service (IRS) will expand the list of jurisdictions that do not issue taxpayer identification numbers to their residents, described in section IV.B.3.ii of Notice 2017-46, 2017-41 I.R.B. 275, to include jurisdictions that make a request to the U.S. competent authority to be included on such list. The Department of the Treasury (Treasury Department) and the IRS intend to amend §1.1441-1T(e)(2)(ii)(B) to incorporate the guidance described in this notice.

 

II.         BACKGROUND

     On January 6, 2017, the Treasury Department and the IRS published temporary regulations under chapter 3 of the Internal Revenue Code (T.D. 9808, 82 F.R. 2046) (temporary regulations). Section 1.1441-1T(e)(2)(ii)(B) of the temporary regulations provides that, beginning January 1, 2017, a beneficial owner withholding certificate provided to document an account maintained at a U.S. branch or office of a withholding agent that is a financial institution is required to contain the taxpayer identification number issued by the account holder’s jurisdiction of tax residence (Foreign TIN) in order for the withholding agent to treat the withholding certificate as valid. Section 1.1441-1T(e)(2)(ii)(B) further provides that for withholding certificates associated with payments made on or after January 1, 2018, an account holder that does not provide a Foreign TIN must provide a reasonable explanation for its absence in order for the withholding certificate not to be considered invalid.

     On September 25, 2017, the Treasury Department and the IRS released Notice 2017-46, which provides guidance modifying the requirements of §1.1441-1T(e)(2)(ii)(B) for withholding agents to obtain and report Foreign TINs of their account holders. Among other things, Notice 2017-46 extends the date on which the requirement to obtain Foreign TINs takes effect to January 1, 2018; provides transitional rules for withholding agents obtaining a Foreign TIN for an account holder documented with an otherwise valid Form W-8 that was signed before January 1, 2018; and provides exceptions to obtaining Foreign TINs for certain categories of account holders. In particular, Notice 2017-46 provides that under regulations to be published at a later date, withholding agents will not be required to obtain a Foreign TIN (or a reasonable explanation for why an account holder has not been issued a Foreign TIN) for an account held by a resident of a jurisdiction that has been identified by the IRS on a list of jurisdictions that do not issue Foreign TINs to their residents (No TIN list). Notice 2017-46 identifies three such jurisdictions, and provides that a list of all such jurisdictions will be made available at www.irs.gov/FATCAand will be updated as necessary. In December 2017, the No TIN list was posted by the IRS and is available athttps://www.irs.gov/businesses/corporations/list-of-jurisdictions-that-do-not-issue-foreign-tins.

 

III.        EXPANSION OF NO TIN LIST TO INCLUDE JURISDICTIONS THAT REQUEST TO BE ON THE LIST

     Since the release of Notice 2017-46, some jurisdictions with laws that restrict the collection or disclosure of the Foreign TINs of their residents have requested that their residents not be required to provide Foreign TINs to withholding agents for purposes of §1.1441-1T(e)(2)(ii)(B). In response to these requests, the Treasury Department and the IRS have decided to expand the No TIN list to include jurisdictions that request to be on the list, even if the jurisdictions issue Foreign TINs to individuals or entities resident in such jurisdictions. To request to be added to the No TIN list, a jurisdiction’s competent authority should contact the U.S. competent authority. As of the date of this notice, the following jurisdiction will be included on the No TIN list:

            Australia

         The Treasury Department and the IRS intend to amend §1.1441-1T(e)(2)(ii)(B) to provide that withholding agents are not required to collect or report Foreign TINs of residents in the jurisdictions on the No TIN list, including the jurisdiction identified above.

 

IV.       TAXPAYER RELIANCE

     Before the issuance of the amendment to the temporary regulations described in section III of this notice, taxpayers may rely on the provisions of this notice regarding the content of the amendment and the inclusion of Australia (and any jurisdictions subsequently included) on the No TIN list.

 

V.        EFFECT ON OTHER DOCUMENTS

     This notice supplements Notice 2017-46.

March 5, 2018 in GATCA | Permalink | Comments (0)

Wednesday, January 17, 2018

IRS Begins Withholding Passports For People Owing $51,000 of Unpaid Tax

The Internal Revenue Service strongly encouraged taxpayers who are seriously behind on their taxes to pay what they owe or enter into a payment agreement with the IRS to avoid putting their passports in jeopardy.

This month, the IRS will begin implementation of new procedures affecting individuals with “seriously delinquent tax debts.” These new procedures implement provisions of the Irs_logoFixing America’s Surface Transportation (FAST) Act, signed into law in December 2015. The FAST Act requires the IRS to notify the State Department of taxpayers the IRS has certified as owing a seriously delinquent tax debt. See Notice 2018-1. The FAST Act also requires the State Department to deny their passport application or deny renewal of their passport. In some cases, the State Department may revoke their passport.

Taxpayers affected by this law are those with a seriously delinquent tax debt.  A taxpayer with a seriously delinquent tax debt is generally someone who owes the IRS more than $51,000 in back taxes, penalties and interest for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired or the IRS has issued a levy.

There are several ways taxpayers can avoid having the IRS notify the State Department of their seriously delinquent tax debt. They include the following:

  • Paying the tax debt in full
  • Paying the tax debt timely under an approved installment agreement,
  • Paying the tax debt timely under an accepted offer in compromise,
  • Paying the tax debt timely under the terms of a settlement agreement with the Department of Justice,
  • Having requested or have a pending collection due process appeal with a levy, or
  • Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief.

A passport won’t be at risk under this program for any taxpayer: 

  • Who is in bankruptcy
  • Who is identified by the IRS as a victim of tax-related identity theft
  • Whose account the IRS has determined is currently not collectible due to hardship
  • Who is located within a federally declared disaster area
  • Who has a request pending with the IRS for an installment agreement
  • Who has a pending offer in compromise with the IRS
  • Who has an IRS accepted adjustment that will satisfy the debt in full

For taxpayers serving in a combat zone who owe a seriously delinquent tax debt, the IRS postpones notifying the State Department and the individual’s passport is not subject to denial during this time.

In general, taxpayers behind on their tax obligations should come forward and pay what they owe or enter into a payment plan with the IRS. Frequently, taxpayers qualify for one of several relief programs, including the following:

  • Taxpayers can request a payment agreement with the IRS by filing Form 9465. Taxpayers can download this form from IRS.gov and mail it along with a tax return, bill or notice. Some taxpayers can use the online payment agreement to set up a monthly payment agreement for up to 72 months.
  • Some financially distressed taxpayers may qualify for an offer in compromise. This is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. The IRS looks at the taxpayer’s income and assets to determine the taxpayer’s ability to pay. To help determine eligibility, use the Offer in Compromise Pre-Qualifier, a free online tool available on IRS.gov.

January 17, 2018 in GATCA | Permalink | Comments (0)

Sunday, December 31, 2017

58 Criminal Leads and 18,000 Non-Criminal Leads Result from Swiss Banks Program

Since the inception of the SBP, 80 Swiss banks have entered into Non-Prosecution Agreements (NPAs) paying over 1.3 Billion in penalties, with about 58 investigative leads being sent to various CI field offices for investigation and action. Additionally, over 18,000 leads that did not meet criminal criteria have been forwarded to IRS’ LB&I Division for civil tax compliance action. (see Page 18)

As the SBP winds down and is scheduled to end in 2017, an International Tax group is being ramped up in CI’s Washington D.C field office. This group’s focus will be to dismantle the most significant International Tax schemes that have been identified as systemic threats to the integrity and fairness of the tax administration. Investigations initiated by this group will be long-term in nature and utilize all tools at the Criminal Investigation Division’s disposal.

Download 2017_criminal_investigation_annual report

December 31, 2017 in GATCA | Permalink | Comments (1)

Tuesday, December 19, 2017

The Bahamas is #116 to Sign Up to OECD's Bank Account Information Sharing via CRS

The Hon. Kevin Peter Turnquest, Deputy Prime Minister and Minister of Finance of the Bahamas signed the  Multilateral Convention on Mutual Administrative Assistance in Tax Matters (“the Convention”) in the presence of OECD Secretary General Angel Gurria. With this signing, The Bahamas becomes the 116th jurisdiction to join the world’s leading instrument for boosting transparency and combating cross-border tax evasion.

The Convention is the most powerful instrument for international tax cooperation providing for all forms of administrative assistance in tax matters: exchange of information on request, spontaneous exchange, automatic exchange, tax examinations abroad, simultaneous tax examinations and assistance in tax collection. It guarantees extensive safeguards for the protection of taxpayers' rights.

The Convention will enable The Bahamas to fulfil their commitment to implement the Standard for Automatic Exchange of Financial Account Information in Tax Mattersand begin the first of such exchanges by 2018. The Bahamas also during the week signed the Multilateral Competent Authority Agreement (MCAA), in the margins of the 14th meeting of the Automatic Exchange of Information Group of the Global Forum on Transparency and Exchange of Information in Tax Matters which took place on 13-15 December 2017 in San Marino. The MCAA, which is a framework agreement specifies the details of what information will be exchanged and when and has been signed by 97 jurisdictions.

In another major step to boost international tax cooperation, The Bahamas has also joined the inclusive framework on BEPS today which makes it the 110th jurisdiction participating on an equal footing in the BEPS Project as Associates. The Convention can also be used to swiftly implement the transparency measures of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project such as the automatic exchange of Country-by-Country reports under Action 13 as well as the sharing of rulings under Action 5 of the BEPS Project.

“Signing “the Convention” is an assertion of the commitment by The Bahamas to protect the integrity of its financial services industry and to effectively implement the OECD's international standards on tax transparency for the automatic exchange of financial account information,” said The Hon. Kevin Peter Turnquest, Deputy Prime Minister and Minister of Finance of the Bahamas.  “The Bahamas is a well known leading international financial centre, as such, we will continue to maintain a well regulated and transparent environment for the provision of international financial services.  This week, we have taken major steps to ensure this by also signing the Multilateral Competent Authority Agreement  (MCAA), and by joining the inclusive framework on Base Erosion Profit Shifting (BEPS)".

December 19, 2017 in GATCA | Permalink | Comments (0)

Sunday, December 17, 2017

IRS Publishes New FATCA FAQs

The IRS published new QI/WP/WT FAQs. The FAQs can be found in the New Applications/Renewals (Q17, Q18 and Q19) and Certifications and Periodic Reviews (Q1 and Q2) subsections on the FATCA – FAQs General page.

Now in its 7th edition, this industry-leading 2,300-page analysis of the FATCA and CRS compliance challenges,  92 chapters by FATCA and CRS FATCAcontributing experts analyzing 35 FATCA and CRS topics and 57 countries’ regulations.  Besides in-depth, practical analysis, the 2018 edition includes examples, charts, timelines, links to source documents, and compliance analysis pursuant to the IGA and local regulations for many U.S. trading partners and financial centers.   Byrnes’ Guide to FATCA & CRS Compliance, designed from interviews with over 100 financial institutions and professional firms, is a primary reference source for financial institutions and service providers, advisors and government departments.  This treatise also includes in-depth analysis of designing a FATCA and CRS internal policy, designing an equivalent form to the W-8, reporting accounts, reporting payments, operational specificity of the mechanisms of information capture, validation for fit for purpose, data management, and exchange by firms and between countries, insights as to the application of FATCA, CRS, and the IGAs within BRIC, SEA and European country chapters.  This seventh edition provides the financial enterprise’s FATCA and CRS compliance officer the tools for developing and maintaining a best practices compliance strategy.  This book does not contain fluff such as page filling forms and regs (that are linked to instead)– it’s all analysis and compliance support materials! 

December 17, 2017 in GATCA | Permalink | Comments (0)

Friday, December 1, 2017

Will FATCA Be Repealed Today? Senate to Vote This Evening.

On Friday, December 1, 2017, the Senate will vote on whether to repeal chapter 4 of the Internal Revenue Code (IRC), also known as FATCA, or whether to continue to it.  The vote will be broadcast live on C Span here.  All amendments are listed here with the respective vote.

Senator Rand Paul and Senator Wicker have submitted Senate Amendment 1623 to repeal FATCA as part of the Senate Tax Bill to be voted on as a package late Friday night.
The supporting documents for analysis and scoring cite to the academic research of Professor William Byrnes of Texas A&M University School of Law as published in several articles on SSRN.

Derivation

Summary of analysis IRS data by William Byrnes of Texas A&M University School of Law http://law.tamu.edu/faculty-staff/find-people/faculty-profiles/william-byrnes; williambyrnes@law.tamu.edu; O: (817) 212-3969; M: (786) 271-5202.

Revenues:

Through October 2016, 55,800 taxpayers have come into the OVDP (Overseas Voluntary Departure Program) to resolve their tax obligations, paying more than $9.9B in combined taxes, interest and primarily FBAR (Report of Foreign Bank and Financial Accounts) penalties since 2009. In addition, another 48,000 taxpayers have made use of separate streamlined procedures to correct prior non-willful omissions and meet their federal tax obligations, paying approximately $450M in combined taxes, interest and penalties. (See: “Offshore Voluntary Compliance Efforts Top $10 Billion; More Than 100,000 Taxpayers Come Back into Compliance”; IR-2016-137, Oct. 21, 2016;  https://www.irs.gov/newsroom/offshore-voluntary-compliance-efforts-top-10-billion-more-than-100000-taxpayers-come-back-into-compliance ) However, this is the yield for all payments (interest and penalties, not just taxes) and from all overseas recovery programs (not just FATCA). To isolate tax revenues recovered solely due to FATCA, Byrnes notes that streamlined procedures are only producing a revenue from three years of tax filings, interest and penalties of $9,375 per taxpayer. This indicates that the portion of the combined tax payments attributable solely to FATCA from income that would not otherwise have been reported from taxpayers who would not have been in compliance absent FATCA is a fraction of the OVDP, less than $300M and probably more realistically in the range of $100-200M and falling over time.

IRS Costs:

In its budget request for 2017, the IRS requested a half-billion dollar budget increase, of which more than 20 percent is for an increase of $126,739,000 to  fund 273 FTE (full time employee) positions solely for FATCA activities under the heading “Theme 2: Understand non-compliant taxpayer behavior and develop approaches to deter and change it.” https://www.irs.gov/pub/newsroom/IRS%20FY%202017%20BIB.pdf The increase (the equivalent of $460,000 per FTE requested) is targeted to “updates to the legacy electronic filing system to modify and process FATCA forms, add additional capabilities in the webbased registration system, and enhance functionality in the systems that facilitate the exchange and processing of FATCA data to and from withholding agents, Foreign Financial Institutions (FFIs) and Host Country Tax Authorities and the United States.” Translated into normal English, this means contending with a flood of data in foreign formats, the overwhelming bulk of which has no tax enforcement value.  The $127M increase is above existing spending on personnel and systems, which is not broken out specifically for FATCA. Given the size of the 2017 increase, a base of least $75M for FATCA activities is a conservative estimate of legacy annual FATCA spending, with the new projected total in the range of $200M, perhaps as high as $250M. This is only IRS costs and does not include damage to U.S. geopolitical interests through the forcing of FATCA and “intergovernmental agreements” upon foreign governments, with the industry costs associated therefrom more than $100 billion. 

SA 1623. Mr. PAUL (for himself and Mr. Wicker) submitted an amendment intended to be proposed to amendment SA 1618 proposed by Mr. Hatch (for himself and Ms. Murkowski) and intended to be proposed to the bill H.R. 1, to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018; which was ordered to lie on the table; as follows:

At the end of subtitle D of title I, add the following: PART IV--REPEAL OF FOREIGN ACCOUNT TAX COMPLIANCE ACT SEC. 14601. REPEAL OF WITHHOLDING AND REPORTING WITH RESPECT TO CERTAIN FOREIGN ACCOUNTS.

(a) In General.--Chapter 4 is repealed.

(b) Conforming Amendments for Rules for Electronically Filed Returns.--Section 6011(e)(4) is amended-- (1) by inserting ``, as in effect on January 1, 2017'' after ``(as defined in section 1471(d)(5)'', and (2) by striking ``or 1474(a)''. (c) Conforming Amendment Related to Substitute Dividends.-- Section 871(m) is amended by striking ``chapters 3 and 4'' both places it appears and inserting ``chapter 3''. (d) Other Conforming Amendments.-- (1) Section 6414 s amended by striking ``or 4''. (2) Paragraph (1) of section 6501(b) is amended by striking ``4,''. (3) Paragraph (2) of section 6501(b) is amended-- (A) by striking ``4,'', and (B) by striking ``and witholding taxes'' in the heading and inserting ``taxes and tax imposed by chapter 3''. (4) Paragraph (3) of section 6513(b) is amended-- (A) by striking ``or 4'', and (B) by striking ``or 1474(b)''. (5) Section 6513(c) is amended by striking ``4,''. (6) Section 6611(e)(4) is amended by striking ``or 4''. (7) Paragraph (1) of section 6724(d) is amended by striking ``under chapter 4 or''. (8) Paragraph (2) of section 6724(d) is amended by striking ``or 4''. (e) Effective Date.--The amendments made by this section shall apply to payments made after the date of the enactment of this Act.

SEC. 14602. REPEAL OF INFORMATION REPORTING WITH RESPECT TO FOREIGN FINANCIAL ASSETS. (a) In General.--Subpart A of part III of subchapter A of chapter 61 is amended by striking section 6038D. (b) Repeal of Modification of Statute of Limitations for Significant Omission of Income in Connection With Foreign Assets.-- (1) Paragraph (1) of section 6501(e) is amended by striking subparagraph (A) and by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively. (2) Subparagraph (A) of section 6501(e), as redesignated by paragraph (1), is amended by striking all that precedes clause (i) and inserting the following: ``(A) General rule.--If the taxpayer omits from gross income an amount properly included therein which is in excess of 25 percent of the amount of gross income stated in the return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within 6 years after the return was filed. For purposes of this subparagraph--''. [[Page S7469]] (3) Paragraph (2) of section 6229(c) is amended by striking ``and such amount is described in clause (i) or (ii) of section 6501(e)(1)(A)'' and inserting ``which is in excess of 25 percent of the amount of gross income stated in its return''. (4) Paragraph (8) of section 6501(c) is amended-- (A) by striking ``pursuant to an election under section 1295(b) or'', (B) by striking ``1298(f)'', and (C) by striking ``6038D,''. (c) Clerical Amendment.--The table of sections for subpart A of part III of subchapter A of chapter 61 is amended by striking the item related to section 6038D. (d) Effective Date.-- (1) In general.--Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act. (2) Returns.--The amendments made by subsection (b) shall apply to returns filed after the date of the enactment of this Act.

SEC. 14603. REPEAL OF PENALTIES FOR UNDERPAYMENTS ATTRIBUTABLE TO UNDISCLOSED FOREIGN FINANCIAL ASSETS. (a) In General.--Section 6662 is amended-- (1) in subsection (b), by striking paragraph (7) and redesignating paragraph (8) as paragraph (7), and (2) by striking subsection (j) and redesignating subsection (k) as subsection (j). (b) Effective Date.--The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.

SEC. 14604. REPEAL OF REPORTING OF ACTIVITIES WITH RESPECT TO PASSIVE FOREIGN INVESTMENT COMPANIES. (a) In General.--Section 1298 is amended by striking subsection (f) and by redesignating subsection (g) as subsection (f). (b) Conforming Amendment.--Section 1291(e) is amended by striking ``and (d)'' and inserting ``, (d), and (f)''. (c) Effective Date.--The amendments made by this section shall take effect on the date of the enactment of this Act.

SEC. 14605. REPEAL OF REPORTING REQUIREMENT FOR UNITED STATES OWNERS OF FOREIGN TRUSTS. (a) In General.--Paragraph (1) of section 6048(b) is amended by striking ``shall submit such information as the Secretary may prescribe with respect to such trust for such year and''. (b) Effective Date.--The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.

SEC. 14606. REPEAL OF MINIMUM PENALTY WITH RESPECT TO FAILURE TO REPORT ON CERTAIN FOREIGN TRUSTS. (a) In General.--Section 6677(a) is amended-- (1) by striking ``the greater of $10,000 or'', and (2) by striking the last sentence and inserting the following: ``In no event shall the penalty under this subsection with respect to any failure exceed the gross reportable amount.''. (b) Effective Date.--The amendments made by this section shall apply to notices and returns required to be filed after the date of the enactment of this Act.

 

December 1, 2017 in GATCA | Permalink | Comments (2)

Monday, November 20, 2017

The Global Forum on Tax Transparency intensifies the pressure on tax evaders worldwide

In the aftermath of the  release of the “Paradise Papers”, 200 delegates from more than 90 delegations met in Yaoundé, Cameroon for the 10th meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes which now includes 147 countries and jurisdictions.
 
The Global Forum adopted the first report on the status of implementation of the AEOI Standarda few weeks after almost 50 countries started exchanges of information under the new standard on automatic exchange of information, with another 53 countries starting in September 2018. The principle of annual implementation reports and peer reviews were agreed at the meeting to ensure effective implementation and a level playing field.
 
The Global Forum published peer reviews of Curaçao, Denmark, India, Isle of Man, Italy and Jersey. The publications bring to a total of 16 the number of second round reviews of the Forum’s 147 member countries and jurisdictions based on its international standard of transparency and exchange of financial account information on request. The standard was reinforced last year to tackle tax evasion more effectively, particularly in areas covering the concept of beneficial ownership.
 

November 20, 2017 in GATCA, OECD | Permalink | Comments (0)

Sunday, November 19, 2017

Qatar is 115th Country to Sign CRS Automatic Exchange of Information OECD Convention

His Excellency Khalid Bin Rashid Al-Mansouri, Ambassador of the State of Qatar to France, signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters in the presence of the OECD Deputy Secretary-General Masamichi Kono. Qatar is the 115th jurisdiction to join the Convention.

The Convention provides all forms of administrative assistance in tax matters: exchange of information on request, spontaneous exchange, automatic exchange, tax examinations abroad, simultaneous tax examinations and assistance in tax collection. It guarantees extensive safeguards for the protection of taxpayers' rights.

The Convention's impact grows with each new signatory; it also serves as the premier instrument for implementing the Standard for Automatic Exchange of Financial Account Information in Tax Matters developed by the OECD and G20 countries, and which is being implemented by over 100 jurisdictions. In this respect, Qatar has today also signed the CRS Multilateral Competent Authority Agreement‎ (CRS MCAA), re-confirming its commitment to implementing the automatic exchange of financial account information pursuant to the OECD/G20 Common Reporting Standard (CRS) in time to commence exchanges in 2018. Qatar is the 96th jurisdiction to sign the CRS MCAA.

The Convention can also be used to swiftly implement the transparency measures of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project such as the automatic exchange of Country-by-Country reports under Action 13 as well as the sharing of rulings under Action 5 of the BEPS Project. The Convention is also a powerful tool in the fight against illicit financial flows.

The Convention was developed jointly by the OECD and the Council of Europe in 1988 and amended in 2010 to respond to the call by the G20 to align it to the international standard on exchange of information and to open it to all countries, thus ensuring that countries around the world could benefit from the new more transparent environment.

The 115 jurisdictions participating in the Convention can be found at: www.oecd.org/tax/exchange-of-tax-information/Status_of_convention.pdf

November 19, 2017 in GATCA | Permalink | Comments (0)

Friday, November 17, 2017

deVere CEO Demands ‘Firm Action’ from Sec. Mnuchin on Fatally-flawed FATCA

The CEO of one of the world’s largest independent financial services organizations has co-written an assertive open letter to the U.S. Treasury Secretary to demand the Trump administration scrap the Foreign Account Tax Compliance Act.

Nigel Green, together with Jim Jatras, his co-leader of the Campaign to Repeal FATCA, have sent the five-page letter to the Honorable Steve Mnuchin as, after a year in office, nothing has been done to abandon the “worst law most Americans have never heard of.” This despite promises in the election campaign that, should they win, the Republicans would “call for repeal” of FATCA.

Enacted in 2010 by a Democrat-controlled Congress and signed into law by Barack Obama, FATCA is virtually unknown to most Americans but has been wreaking havoc with the global financial system outside the U.S. Touted as a weapon against “fat cat” tax evaders stashing funds offshore, FATCA is instead an indiscriminate information dragnet requiring all non-U.S. financial institutions (banks, credit unions, insurance companies, investment and pension funds, etc.) in every country in the world to report data on all specified U.S. accounts to the IRS. If any country refuses to comply, FATCA provides for its financial sector to be hit with crippling penalties that will tank its economy.

The letter, dated November 14, states: “We are writing to you on the supposition that in a democratic country, elections should have consequences. When a political party stands before the electorate on declared principles and makes specific promises, those principles and promises should be reflected in how that party governs under its mandate from the voters.”

They are referring to the 2016 Republican Platform that read: “The Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank and Asset Reporting Requirements result in government’s warrantless seizure of personal financial information without reasonable suspicion or probable cause. Americans overseas should enjoy the same rights as Americans residing in the United States, whose private financial information is not subject to disclosure to the government except as to interest earned. The requirement for all banks around the world to provide detailed information to the IRS about American account holders outside the United States has resulted in banks refusing service to them. Thus, FATCA not only allows ‘unreasonable search and seizures’ but also threatens the ability of overseas Americans to lead normal lives. We call for its repeal and for a change to residency-based taxation for U.S. citizens overseas.”

In the letter, Mr Green and Mr Jatras comment: “This Republican pledge to repeal FATCA rests on the deepest and most cherished American principles, not least a decent respect for the privacy of citizens who are not engaged in lawbreaking and are not even suspected of doing so. Even the IRS’s own Taxpayer Advocate Service has criticized FATCA’s ‘enforcement-oriented regime with respect to international taxpayers’ with its ‘operative assumption [that] appears to be that all such taxpayers should be suspected of fraudulent activity, unless proven otherwise’.”

They add: “We are confident that legislative progress is being made and that FATCA will be repealed in the near future. We are writing to you now because of our disappointment that no positive action has yet been taken by the other part of the apparatus of government, in the Executive Branch. This includes the Department of the Treasury.”

Nigel Green and Jim Jatras launched the Campaign to Repeal FATCA, a Washington DC-based lobbying group, in February.

At the launch, Mr Green noted: “FATCA is an extraterritorial diktat that burdens other countries’ financial institutions and their clients, which violates other countries’ sovereignty, and which is detrimental to their consumers and taxpayers.

“It turns law-abiding, middle-class Americans living overseas, of whom there are approximately eight million, into financial pariahs.”

The letter to Secretary Mnuchin, in which it is requested that he personally takes “firm action”, concludes with a sharp assertion: “It’s well past time that the choice American voters made last year became a reality with respect to this critical issue.”

In summary, Jim Jatras affirms: “To put it bluntly, after the passage of a full year since Election Day 2016, by all indications the Obama Administration remains firmly in power as far as FATCA is concerned.”

++++++++++++++++++++

The full text of the letter follows below and is available in PDF here:

Campaign to Repeal FATCA

November 14, 2017

The Honorable Steven Terner Mnuchin
Department of the Treasury

1500 Pennsylvania Avenue, NW
Washington, D.C. 20220

Dear Secretary Mnuchin:

The Campaign to Repeal FATCA (www.RepealFATCAcom) was launched earlier this year with one purpose: to get rid of the Foreign Account Tax Compliance Act.  FATCA is a textbook example of a badly conceived, badly written, and badly enforced law that doesn’t achieve its stated purpose but does inflict an excess of harmful consequences on citizens, American taxpayers around the world, the global financial and investment sectors, and the principle of national sovereignty.

As Co-Leaders of the Campaign, we are writing to you on the supposition that in a democratic country elections should have consequences. When a political party stands before the electorate on declared principles and makes specific promises, those principles and promises should be reflected in how that party governs under its mandate from the voters.

The 2016 Republican Platform reads in part:

“The Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank and Asset Reporting Requirements result in government’s warrantless seizure of personal financial information without reasonable suspicion or probable cause. Americans overseas should enjoy the same rights as Americans residing in the United States, whose private financial information is not subject to disclosure to the government except as to interest earned. The requirement for all banks around the world to provide detailed information to the IRS about American account holders outside the United States has resulted in banks refusing service to them. Thus, FATCA not only allows ‘unreasonable search and seizures’ but also threatens the ability of overseas Americans to lead normal lives. We call for its repeal and for a change to residency-based taxation for U.S. citizens overseas.”

This Republican pledge to repeal FATCA rests on the deepest and most cherished American principles, not least a decent respect for the privacy of citizens who are not engaged in lawbreaking and are not even suspected of doing so. Even the IRS’s own Taxpayer Advocate Service has criticized FATCA’s “enforcement-oriented regime with respect to international taxpayers” with its “operative assumption [that] appears to be that all such taxpayers should be suspected of fraudulent activity, unless proven otherwise.”

FATCA’s privacy violations and compliance burdens fall disproportionately upon people of moderate means, few of whom are engaged in evasion or owe any tax at all. As examined at a hearing on April 26 of this year by the House Subcommittee on Government Oversight presided over by House Freedom Caucus Chairman Mark Meadows, FATCA has led to financial institutions around the world denying or withdrawing financial services from Americans, in turn leading to growing numbers of U.S citizenship renunciations. (Meanwhile the genuine “fat cats” supposedly targeted by FATCA can easily avoid it by hiding assets in real estate, bullion, fine art, gems, and other ruses.)

FATCA’s indiscriminate invasion of privacy would be unjustifiable even if it were an effective mechanism for detecting offshore tax evasion and recovering revenues due. But FATCA is a failure from that standpoint as well, as irrefutably demonstrated by Professor William Byrnes of Texas A&M University School of Law, who calculates that the actual net recovery attributable to FATCA is a mere $100-200 million per year – far less than the approximately $800 million it was scored upon enactment in 2010. Worse, projects Byrnes, the recovery trend is downward, and FATCA (excepting penalties for filing deficiencies, even where there is no tax liability) could soon cost more money than it brings in. This contrasts to the IRS’s standard of approximately seven dollars in tax recovery for every enforcement dollar spent. As a weapon to combat tax evasion, FATCA is a waste of money that could be more effectively spent on other programs.

In addition, FATCA imposes massive compliance costs on the entire global financial system – money that comes out of the pockets of customers, depositors, and shareholders. Even a small non-U.S. bank can expect to spend millions of dollars looking for American “indicia” among thousands of accounts. According to available data, bigger institutions spend much more. For example, according to the Wall Street Journal, Canada’s “Big Five” banks collectively had paid out $693.5 million in primary compliance by 2014. Bank of Nova Scotia alone had spent $100 million as of 2013. As cited by Professor Byrnes, BBVA (Banco Bilbao Vizcaya Argentaria, S.A.), Spain’s second-largest bank, estimates FATCA compliance costs to be at least €8 million for a local entity up to €800 million for a global one; similarly a cost estimate from the U.K. Revenue for British financial institutions is a one-off cost of approximately £900 million to £1,600 million, with an ongoing cost of £50 million to £90 million a year. Estimates of total global compliance spending rely on aggregating what is known about per-institution costs. One such projection assesses FATCA’s cumulative cost at between $58 billion and $170 billion. This is an order of magnitude greater than any recoveries from FATCA.

It is thus no mystery why big accounting, law, and software firms are thrilled with FATCA and are keen to insist that “FATCA is here to stay!” But corporate welfare for compliance vendors who are the real fat cats in this saga is no reason to keep a bad law.

Thus, there is overwhelming reason for the Republican Party – which is in unified control of the Executive Branch and of both houses of Congress – to keep its promise to the American people. To that end, our Campaign is working with the Congressional sponsors of FATCA repeal legislation in both chambers: Senator Rand Paul (S.869) and Representative Mark Meadows (H.R. 2054). The repeal movement has also gained the support of numerous taxpayer groups, including Americans for Tax Reform, the National Taxpayers Union, the Center for Freedom and Prosperity, American Commitment, the Taxpayers Protection Alliance, the Competitive Enterprise Institute, R Street Institute, The Market Institute, the Center for Individual Freedom, Frontiers of Freedom, 60 Plus Association, FreedomWorks, the Sovereign Society Freedom Alliance, the Institute for Liberty, The National Tax Limitation Committee, Citizen Outreach, Campaign for Liberty, Jeffersonian Project, The Institute for Policy Innovation, Americans for Limited Government, the National Center for Policy Analysis, the Small Business and Entrepreneurship Council, and others. In addition, the Credit Unions of North America and the World Council of Credit Unions have also called for repealing FATCA.

We are confident that legislative progress is being made and that FATCA will be repealed in the near future. We are writing to you now because of our disappointment that no positive action has yet been taken by the other part of the apparatus of government, in the Executive Branch. This includes the Department of the Treasury.

Our concerns in this area relate mainly to the so-called “intergovernmental agreements” (IGAs). The IGAs are a product of the Treasury Department’s realization soon after FATCA’s enactment that it was unenforceable in light of other countries’ privacy laws and that the only way to implement this ill-advised and badly crafted mandate on hundreds of thousands of non-U.S. firms – over which American law has no jurisdiction – would be to induce foreign governments to enforce FATCA against their own citizens and institutions. Worse, as an incentive for foreign governments to sign the IGAs, the Geithner and Lew Treasury Department promised, in the name of the United States, to provide “reciprocal” information from U.S. institutions – a promise which, if kept, would impose immense FATCA-like compliance costs on American domestic financial firms.

Neither such reporting nor the IGAs themselves are authorized by FATCA or any other statute. The IGAs are not submitted as treaties to the U.S. Senate for that body’s advice and consent, though the non-U.S. party is required to ratify the IGA under “its necessary internal procedures for entry into force.” Imposing such one-sided agreements on America’s trading partners under threat of sanctions amounts to a gross violation of international comity and the very concept of national sovereignty. No wonder the Organisation for Economic Co-operation and Development, which for years has sought to extinguish personal financial privacy and create a worldwide financial data fishbowl, has praised the IGAs as a “catalyst” to that end.

It should be clear from the foregoing that the IGAs are a textbook example of the prior administration’s disdain for the rule of law in favor of Executive overreach. As former House Speaker John Boehner put it in another context, President Barack Obama demonstrated an unprecedented circumvention of Congressional authority “through executive action, changing and creating his own laws, and excusing himself from enforcing statutes he is sworn to uphold – at times even boasting about his willingness to do it, as if daring the American people to stop him.” This characterization fits the IGAs to a T.

Secretary Mnuchin, the IGAs are purely inventions of the Treasury Department under your two immediate predecessors and can be revoked by you under the same authority. We are aware of at least two Congressional letters sent to you taking issue with the IGAs and urging specific steps by your Department to nullify the IGAs and alleviate their harmful impact. One letter, from Senator Paul and Congressman Meadows, was sent on April 3, 2017, and was also addressed to OMB Director Mick Mulvaney. The other, from Congressman Bill Posey, a member of the Financial Services Committee, was sent on September 29.

Despite these urgings, nothing has been done to reverse your predecessors’ highhanded and legally dubious actions related to FATCA. Quite to the contrary, under the Trump Administration the Department has pressed ahead with signing additional IGAs. For example, an IGA was signed with Ukraine in February of this year – after President Trump took office – and with Kazakhstan in September. Making “progress” towards a FATCA agreement with Singapore (a euphemism for pressuring that country) was part of President Trump’s briefing points for Prime Minister Lee Hsien Loong’s White House visit in October.

To put it bluntly, after the passage of a full year since Election Day 2016, by all indications the Obama Administration remains firmly in power as far as FATCA and the IGAs are concerned. While from outside the Treasury Department we are not in a position to tell which individuals are responsible for this state of affairs, we suggest with all due respect that it is your responsibility to inform the career officials who work for you than an election took place last year and to direct them to cease their efforts to carry out your predecessors’ legally deficient directives with respect to FATCA. At a minimum this should include (from the April 3 letter to you from Senator Paul and Representative Meadows) your taking action to –

“Instruct the Treasury Department’s Office of International Affairs and other elements of the Department that may be involved to cease all efforts to negotiate, sign, and implement IGAs. Continued signings of new IGAs – most recently with Ukraine in February 2017 – send a false signal that the new administration is committed to this destructive law as matter of policy.

“Announce that the IGAs are under legal review of their authority and that if they are found to be legally infirm – as I [sic] believe they will be – they may be declared invalid ab initiowith immediate effect or terminated upon expiry of the one-year’s notice specified.

“Under the broad authority FATCA grants the Treasury Secretary, deem all impacted foreign institutions compliant on a temporary basis pending outcome of the legal review of the IGAs. The IRS should also be instructed to suspend enforcement of provisions impacting individual taxpayers; and, on an urgent basis to help decrease the spiking increasing [sic] in U.S. citizenship renunciations, suspend imposition of penalties for FATCA filing errors by individuals.”

We thank you for your prompt attention to this matter and your anticipated implementation of the measures above.

We now turn our attention to a distinct but related topic. The same passage in the Republican Platform pertaining to FATCA also calls for “a change to residency-based taxation for U.S. citizens overseas.” As is not necessary to detail here, the United States is the only major country that taxes its citizens worldwide on the basis of citizenship, not residence. This creates a host of problems and inequities for the up to ten million Americans resident abroad. While adoption of a residency-based taxation (RBT) system is not a specific task of our Campaign, we strongly endorse the concept and hope it will be enacted as part of tax reform legislation pending on Capitol Hill.

As far as we are aware, RBT is not yet included in either the House or Senate tax bill. We also note that there are several approaches as to how RBT could be adopted. However, we draw your attention to the fact that suggestions have been made that adoption of RBT – were it to occur – would eliminate the need for repealing FATCA.

In our opinion, nothing could be further from the truth. While adoption of RBT could in some minor way assuage the administrative pain inflicted on Americans abroad, the fundamental flaws of FATCA would remain. As far as FATCA goes, RBT’s positive impact would be comparable to an aspirin’s on cancer. (This is not meant to minimize RBT’s benefits on matters unrelated to FATCA.)

Even under an RBT system, the larger toxic features of FATCA would remain. Keep in mind that FATCA is purely a financial reporting mandate that has no direct relationship to taxes or to what assets get taxed. FATCA demands data on assets whether they are subject to taxation or not. In principle, FATCA and the IGAs could stay in place just as they are even if RBT is adopted. At best, the entire structure of FATCA’s indiscriminate violation of personal privacy would remain unaffected except, in principle, applied only to U.S. residents as opposed to all citizens. The IGAs would presumably stay in place as well, with their ongoing damage to the principle of state sovereignty. The massive compliance costs imposed on financial institutions globally would remain, as would the gravy train for the relevant vendors.

Perhaps worst of all, by enacting RBT but leaving FATCA on the books, the Trump Administration would be wrongly declaring the FATCA problem solved. This would allow the dead hand of the past administration to reach into the future without limit: more IGAs, perhaps in due course the imposition of reciprocity on domestic American financial firms, and in the foreseeable future a global FATCA – or “GATCA.” This is the antithesis of what the GOP Platform promised.

The media carry numerous accounts of how the Trump Administration’s policies are being undermined by career bureaucrats and, in some cases, even holdovers from the Obama era. To the extent that that is the case at the Treasury Department and the root of the concerns we have expressed in this letter, we ask that you take prompt and firm action to rectify matters. We are already almost a year into what was supposed to be a sharp break from the failed policies of the past with as yet no Executive progress on FATCA. It’s well past time that the choice American voters made last year became a reality with respect to this critical issue.

Thanking you in advance for your attention and consideration, we remain –

Sincerely yours,

Nigel J. Green
Jim Jatras

CC:

The Honorable Rand Paul
The Honorable Mark Meadows
The Honorable Bill Posey
The Honorable Mick Mulvaney
Mr. Grover Norquist, Americans for Tax Reform
Mr. Pete Sepp, National Taxpayers Union
Mr. Brian Garst, Center for Freedom and Prosperity

November 17, 2017 in GATCA | Permalink | Comments (0)

Thursday, November 2, 2017

Green Card Holder Pleads Guilty of Failing to File FBAR and Report UBS Account, Will Pay More than Half the Assets in FBAR and Tax Penalties

A Greenwich, Connecticut man pleaded guilty October 26, 2017, to failing to report funds he maintained in foreign bank accounts to the Department of Treasury, announced Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division, U.S. Attorney Dana J. Boente for the Eastern District of Virginia, and Chief Don Fort, IRS Criminal Investigation. 

According to court documents and information provided in court, Hyung Kwon Kim, a citizen of South Korea and, since 1998, a legal permanent resident of the United States, resided in Massachusetts and later in Connecticut.  Around 1998, Kim traveled to Switzerland to identify financial institutions at which to open accounts for the purpose of receiving transfers of funds from another individual in Hong Kong.  Over the next few years, Kim opened accounts at several banks, including Credit Suisse, UBS, Bank Leu, Clariden Leu, and Bank Hofmann.  In 2004, the value of the funds in Kim’s accounts exceeded $28 million.

U.S. citizens, resident aliens, and permanent legal residents with a foreign financial interest in or signatory authority over a foreign financial account worth more than $10,000 are required to file a Report of Foreign Bank and Financial Accounts, commonly known as an FBAR, disclosing the account.

Kim conspired with several bankers, including Dr. Edgar H. Paltzer, to conceal the funds from U.S. authorities.  Paltzer, who was convicted in 2013 in the Southern District of New York for conspiring to defraud the United States, and the other bankers assisted Kim in opening accounts in the names of sham entities organized in Liechtenstein, Panama and the British Virgin Islands.  Paltzer and the other bankers facilitated financial transactions for Kim, so that Kim could use the funds in the United States.  For example, between 2003 and 2004, Kim directed Paltzer and another banker to issue nearly $3 million in checks payable to third parties in the United States for the purchase of a residence in Greenwich, Connecticut.  In 2005, Kim created a nominee entity to hold title for the purchase of another home on Stage Harbor in Chatham, Massachusetts, for nearly $5 million.  Kim and Paltzer communicated about the purchase in a manner that created the appearance that Kim was renting the property from a fictitious owner.

Between 2000 and 2008, Kim took multiple trips to Zurich, Switzerland and withdrew more than $600,000 in cash during these visits.  He also brought his offshore assets back to the United States by purchasing millions of dollars’ worth of jewelry and loose gems.  For example, in 2008, Kim purchased an 8.6 carat ruby ring from a jeweler in Greenwich, Connecticut, which he financed by causing Bank Leu to issue three checks totaling $2.2 million to the jeweler.

In 2008, during a trip to Zurich, Kim’s banker at Clariden Leu informed Kim that due to ongoing investigations in the United States, Kim could either disclose the accounts to the U.S. government, spend the funds, or move the funds to another institution.  Kim moved the funds into nominee accounts at another bank. In 2011, Kim liquidated the accounts by, among other things, withdrawing tens of thousands of dollars in cash and purchasing three loose diamonds for about $1.7 million from the Greenwich jeweler.

Kim also admitted that from 2000 through 2011, he filed false income tax returns for 1999 through 2010, on which he failed to report income from the assets held in the foreign financial accounts that he owned and controlled in Switzerland. 

As part of his plea agreement, Kim will pay a civil penalty of over $14 million dollars to the United States Treasury for failing to file, and filing false, FBARs, which is separate from any restitution the Court may order.

“For more than a decade Hyung Kim concealed his wealth in secret offshore accounts, evading reporting requirements and the payment of income taxes due,” said Acting Deputy Assistant Attorney General Goldberg.  “With his guilty plea, he is now held to account for his criminal conduct.  Offshore tax evasion is a top priority for the Tax Division, and we will continue to work with our partners at IRS to follow the money and actively pursue those who persist in thinking that they can safely hide their income and assets offshore.”  

“Mr. Kim’s plea is another example of what happens to those who dodge their tax obligations by utilizing offshore tax havens,” said Chief Don Fort, IRS Criminal Investigation. “We owe it to the vast majority of honest U.S. taxpayers to tirelessly search for and prosecute those who avoid paying their fair share, regardless of how they may try to disguise their income.”

Sentencing is scheduled for Jan. 26, 2018 before U.S. District Court Judge T.S. Ellis III.  Kim faces a statutory maximum sentence of five years in prison.  He also faces a period of supervised release, restitution, and monetary penalties, in addition to the FBAR penalty.

November 2, 2017 in GATCA | Permalink | Comments (0)