International Financial Law Prof Blog

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

Tuesday, July 28, 2020

Georgia commits to implement international standard on automatic exchange of financial information by 2023

On 8 June 2020, the Honourable Ivane Matchavariani, Minister of Finance of Georgia, committed to implement the international standard on automatic exchange of financial account information by 2023. This powerful new tool will not only generate additional taxable revenues for Georgia by allowing it to identify cases of tax evasion but also drive changes in taxpayer behaviour.

The Honourable Ivane Matchavariani stated “As a member of Global Forum, Georgia stays committed to implementing the global standards on tax transparency and exchange of information for tax purposes and wishes to formally express its commitment to implement the Standard for Automatic Exchange of Financial Information in Tax Matters (the AEOI Standard). Our intention is to begin the first exchanges under the AEOI Standard in September 2023.”

The Global Forum welcomes Georgia’s commitment as it joins 112 other jurisdictions which have committed to AEOI.

The Global Forum Secretariat will continue to provide technical assistance support for Georgia as it moves to implement AEOI, including within the AEOI pilot project. The pilot project is a partnership between Georgia, Germany and the Global Forum Secretariat, to support the implementation of AEOI in Georgia.

» Read the 2019 AEOI implementation report

July 28, 2020 in GATCA, OECD | Permalink | Comments (0)

Tuesday, July 7, 2020

International community continues making progress against offshore tax evasion

The international community continues making tremendous progress in the fight against offshore tax evasion, as implementation of innovative transparency standards by the Global Forum on Transparency and Exchange of Information for Tax Purposes moves countries ever closer to the goal of eradicating banking secrecy for tax purposes.

Nearly 100 countries carried out automatic exchange of information in 2019, enabling their tax authorities to obtain data on 84 million financial accounts held offshore by their residents, covering total assets of EUR 10 trillion. This represents a significant increase over 2018 – the first year of such information exchange – where information on 47 million financial accounts was exchanged, representing EUR 5 trillion. The growth stems from an increase in the number of jurisdictions receiving information as well as a wider scope of information exchanged.


The Common Reporting Standard requires countries and jurisdictions to exchange financial account information from non-residents obtained from their financial institutions automatically on an annual basis, reducing the possibility for offshore tax evasion. Many developing countries have joined the process and more are expected to join in the coming years.

“Automatic exchange of information is a game changer,” OECD Secretary-General Angel Gurría said on the eve of a plenary meeting of the OECD/G20 Inclusive Framework on BEPS. “This system of multilateral exchange created by the OECD and managed by the Global Forum is providing countries around the world, including many developing countries, with a wealth of new information, empowering their tax administrations to ensure that offshore accounts are being properly declared. Countries are going to raise much needed revenue, especially critical now in light of the current COVID-19 crisis, while moving closer to a world where there is nowhere left to hide.”

Since the G20 declared an end to bank secrecy in 2009, the international community has made strong and ongoing progress in the fight against offshore tax evasion. Under the leadership of the Global Forum, which brings together 161 countries and jurisdictions committed to OECD tax standards, countries have ramped up global co-operation, first through exchange of information on request and through automatic exchange since 2017, implemented through more than 6,000 bilateral relationships worldwide in 2019 (4,500 in 2018).

The benefits were seen even before the exchanges began. A November 2019 OECD study shows that wider exchange of information driven by the Global Forum was associated with a global reduction in foreign-owned bank deposits in international financial centres (IFC) by 24% (USD 410 billion) between 2008 and 2019. Voluntary disclosure programmes, offshore tax investigations and related measures before the start of automatic exchange in 2017 and since then, have already led to the identification of more than 100 billion euros of additional tax revenues worldwide.

“The discovery of previously hidden accounts thanks to automatic exchange of information has and will lead to billions in additional tax revenues,” Mr Gurría said. “The tremendous achievements of our tax transparency work prove that when we work together, we all win. International co-operation is a condition for success.”

For more information on the Global Forum on Transparency and Exchange of Information for Tax Purposes, visit: https://www.oecd.org/tax/transparency.

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July 7, 2020 in GATCA | Permalink | Comments (0)

Monday, March 9, 2020

CRS and FATCA Amendment Regulations, CRS Reportable Jurisdictions Now Available

The Department for International Tax Cooperation (DITC) advises industry that the Amendments to the CRS & FATCA Regulations were approved by Cabinet on 18 February 2020 and take immediate effect: Tax Information Authority (International Tax Compliance) (Common Reporting Standard) (Amendment) Regulations, 2020 Tax Information Authority (International Tax Compliance) (United States of America) (Amendment) Regulations, 2020 […]  Download here

The Department for International Tax Cooperation (DITC) advises industry that the Amendments to the CRS & FATCA Regulations were approved by Cabinet on 18 February 2020 and take immediate effect:

  1. Tax Information Authority (International Tax Compliance) (Common Reporting Standard) (Amendment) Regulations, 2020
  2. Tax Information Authority (International Tax Compliance) (United States of America) (Amendment) Regulations, 2020

Additionally, industry is advised that the updated list of 2020 CRS Reportable Jurisdictions was published in Extraordinary Gazette No.14 of 2020:

  1. 020 CRS Reportable Jurisdictions

Please note the following:

  1. The annual reporting deadline for CRS & FATCA is changed to 31st July. However, the reporting deadline for the 2019 reporting period is extended to 18 September 2020 due to development of the new DITC Portal.
  2. The requirement for the Authorising Person (AP) and Principal Point of Contact (PPoC) to be an individual has been removed. A guidance note reflecting the impact of the “Institutional User” can be found on the DITC News & Updates page.
  3. Six jurisdictions have been added to the 2020 list of CRS reportable jurisdictions.
  4. Launch date of the new DITC Portal is June 1st. FAQs and further information can be found on the DITC News & Updates page.
  5. Any questions may be emailed to – CaymanAEOIPortal@gov.ky

March 9, 2020 in GATCA | Permalink | Comments (0)

Saturday, February 1, 2020

Viet Nam and Palau join the Global Forum on Tax Transparency

Viet Nam and Palau join the international fight against tax evasion by becoming the 159th and 160th member of the Global Forum on Transparency and Exchange of Information for Tax Purposes.

Viet Nam and Palau, like all other Global Forum members, will participate on an equal footing, and are committed to combatting tax evasion through implementing the internationally agreed standards of transparency and exchange of information for tax purposes-both exchange of information on request and automatic exchange of informationMembers of the Global Forum include all G20 countries, all OECD members, all international financial centres and a very large number of developing countries.

The Global Forum is the world’s leading multilateral body mandated to ensure that all jurisdictions adhere to the same high standard of international co-operation in tax matters. This is done through a robust monitoring and peer review process which Viet Nam and Palau will also be subject to. The Global Forum also has an extensive technical assistance programme to provide support to its members to implement the standards and quickly use the tools available to tax administrations to fight cross-border tax evasion.

 

February 1, 2020 in GATCA, OECD | Permalink | Comments (0)

Tuesday, December 31, 2019

Coutts to Pay Additional $27.9 Million for 311 Undisclosed Accounts, Addendum to Non-Prosecution Agreement

The Department of Justice announced that it has signed an Addendum to a non-prosecution agreement with Coutts & Co Ltd. (Coutts), a private Swiss bank headquartered in Zurich.  The original non-prosecution agreement was signed on Dec. 23, 2015. At that time, Coutts reported that it held and managed 1,337 U.S. related accounts, with assets under management exceeding $2 billion, and paid a penalty of $78,484,000. In reaching today’s agreement, Coutts acknowledges that it should have disclosed additional U.S.-related accounts to the Department at the time of the signing of the non-prosecution agreement.

“This agreement reflects our commitment to ensuring that foreign banks that participated in the Swiss Bank Program fully comply with their obligations to disclose accounts in which U.S. taxpayers have direct or indirect interests,” said Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division. “When any person or entity makes false, incomplete, or misleading disclosures to the Department, the Department will hold those persons or entities accountable.”

The Swiss Bank Program, which was announced on Aug. 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 Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts. As participants in the program, they 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.  Pursuant to today’s agreement, Coutts will pay an additional sum of $27,900,000 and will provide supplemental information regarding its U.S.-related account population, which now includes 311 additional accounts. 

Every bank that signed a non-prosecution agreement in the Swiss Bank Program had represented that it had disclosed all known U.S.-related accounts that were open at each bank between Aug. 1, 2008, and Dec. 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, Coutts acknowledges that there were 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. Coutts has fully cooperated with the Department with respect to the additional U.S.-related accounts.  

 

December 31, 2019 in GATCA | Permalink | Comments (0)

Wednesday, December 11, 2019

Deferred Prosecution Agreement with HSBC Bank, Admits Assisting U.S. Taxpayers Conceal Income and Assets; Pays $192.35 Million Penalty

HSBC Private Bank (Suisse) SA (HSBC Switzerland), a private bank headquartered in Geneva, has entered into a deferred prosecution agreement (DPA) with the Department of Justice. HSBC Switzerland admitted to conspiring with U.S. taxpayers to evade taxes and, as part of the agreement, HSBC Switzerland will pay $192.35 million in penalties.

According to court documents, HSBC Switzerland admits that between 2000 and 2010 it conspired with its employees, third-party and wholly-owned fiduciaries, and U.S. clients to: 1) defraud the United States with respect to taxes; 2) commit tax evasion; and 3) file false federal tax returns. In 2002, the bank had approximately 720 undeclared U.S. client relationships, with an aggregate value of more than $800 million. When the bank’s undeclared assets under management reached their peak in 2007, HSBC Switzerland held approximately $1.26 billion in undeclared assets for U.S. clients. 

According to the terms of the DPA, HSBC Switzerland will cooperate fully with the Tax Division and the IRS. The DPA also requires HSBC Switzerland to affirmatively disclose information it may later uncover regarding U.S.-related accounts, as well as to disclose information consistent with the department’s Swiss Bank Program relating to accounts closed between Jan. 1, 2009 and Dec. 31, 2017. Under the DPA, prosecution against the bank for conspiracy will be deferred for an initial period of three years to allow HSBC Switzerland to demonstrate good conduct. The agreement provides no protection for any individuals.

The $192.35 million penalty against HSBC Switzerland has three parts. First, HSBC Switzerland has agreed to pay $60,600,000 in restitution to the IRS, which represents the unpaid taxes resulting from HSBC Switzerland’s participation in the conspiracy. Second, HSBC Switzerland agreed to forfeit $71,850,000 to the United States, which represents gross fees (not profits) that the bank earned on its undeclared accounts between 2000 and 2010. Finally, HSBC Switzerland agreed to pay a penalty of $59,900,000. This penalty amount takes into consideration that HSBC Switzerland self-reported its conduct, conducted a thorough internal investigation, provided client identifying information to the Tax Division, and extensively cooperated in a series of investigations and prosecutions, as well as implemented remedial measures to protect against the use of its services for tax evasion in the future.

According to court documents filed as part of the DPA, the bank assisted U.S. clients in concealing their offshore assets and income from U.S. taxing authorities. To conceal its clients’ assets and income from the IRS, HSBC Switzerland employed a variety of methods, including relying on Swiss bank secrecy to prevent disclosure to U.S. authorities, using code-name and numbered accounts and hold-mail agreements, and maintaining accounts in the names of nominee entities established in tax haven jurisdictions, such as the British Virgin Islands, Liechtenstein, and Panama, that concealed the client’s beneficial ownership of the accounts.

In an effort to attract new U.S. clients, and maintain existing relationships with U.S. clients, HSBC Switzerland bankers took trips to the United States. Between 2005 and 2007, at least four HSBC Switzerland bankers traveled to the United States to meet at least 25 different clients. One banker also attended Design Miami, a major annual arts and design event in Miami, Florida, in an effort to recruit new U.S. clients to open undeclared accounts with HSBC Switzerland. 

In early 2008, in response to a public U.S. criminal investigation into UBS AG, the largest bank in Switzerland, for tax and securities violations in connection with its maintaining undeclared accounts for U.S. clients, HSBC Switzerland began a series of policy changes to restrict its cross-border business with U.S. persons, but the bank did not immediately cease that business. In fact, some HSBC Switzerland bankers assisted clients in closing their accounts in a manner that continued to conceal their offshore assets, such as withdrawing the contents of their accounts in cash.     

 
 

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December 11, 2019 in GATCA | Permalink | Comments (0)

Wednesday, November 20, 2019

Public Hearing on FATCA and its extraterritorial impact on EU citizens

On 12 November 2019 the Committee on Petitions organised a hearing on "FATCA and its extraterritorial impact on EU Citizens.” The aim of the hearing was to facilitate an exchange of views between the various stakeholders and listen to the issues faced by EU citizens affected by FATCA. The hearing consisted of two panels, focusing on financial services and the exchange of tax information with the US and on potential conflicts between European data protection rules and FATCA.

November 20, 2019 in GATCA | Permalink | Comments (0)

Tuesday, September 17, 2019

Houston Attorney Convicted of Offshore Tax Evasion Scheme

Conspired to Repatriate More Than $18 Million in Untaxed Money Held in Foreign Banks

A Houston, Texas, attorney was convicted today of one count of conspiracy to defraud the United States and three counts of tax evasion, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Department of Justice’s Tax Division and U.S. Attorney Ryan K. Patrick for the Southern District of Texas.

According to the evidence presented at trial, Jack Stephen Pursley, also known as Steve Pursley, conspired with a former client to repatriate more than $18 million in untaxed income that the client had earned through his company, Southeastern Shipping. Knowing that his client had never paid taxes on these funds, Pursley designed and implemented a scheme whereby the untaxed funds were transferred from Southeastern Shipping’s business bank account, located in the Isle of Man, to the United States. Pursley helped to conceal the movement of funds from the Internal Revenue Service (IRS) by disguising the transfers as stock purchases in United States corporations owned and controlled by Pursley and his client.

At trial, the government proved that Pursley received more than $4.8 million and a 25% ownership interest in the co-conspirator’s ongoing business for his role in the fraudulent scheme. For tax years 2009 and 2010, Pursley evaded the assessment of and failed to pay the income taxes he owed on these payments by, among other means, withdrawing the funds as purported non-taxable loans and returns of capital. The government showed at trial that Pursley used the money he garnered from the fraudulent scheme for personal investments, and to purchase assets for himself, including a vacation home in Vail, Colorado and property in Houston, Texas.

September 17, 2019 in GATCA | Permalink | Comments (0)

Saturday, July 20, 2019

Justice Department Announces Addendum to Swiss Bank Program Category 2 Non-Prosecution Agreement with Banque Bonhôte & Cie SA

Bank to Pay Additional $1.2 Million to U.S. for Non-Disclosed Accounts: Download Addendum

The Department of Justice announced today that it has signed an Addendum to a non-prosecution agreement with Banque Bonhôte & Cie SA, Ltd. (Bonhôte) of Neuchâtel Switzerland.  The original non-prosecution agreement was signed on Nov. 3, 2015.  At that time, Bonhôte reported that it held and managed 63 U.S. Related Accounts, with assets under management exceeding $88 million, and paid a penalty of $624,000. In reaching today’s agreement, Bonhôte acknowledges it should have disclosed additional U.S.-related accounts to the Department at the time of the signing of the non-prosecution agreement.

The Swiss Bank Program, announced on Aug. 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 that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts. As participants in the program, they 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.  Pursuant to today’s agreement, Bonhôte will pay an additional sum of $1,200,000 and will provide supplemental information regarding its U.S.-related account population, which now includes eight additional accounts with assets under management of approximately $33 million. 

Every bank that signed a non-prosecution agreement in the Swiss Bank Program represented that it had disclosed all known U.S.-related accounts that were open at each bank between Aug. 1, 2008, and Dec. 31, 2014.  Each bank also represented that during the term of each non-prosecution agreement it would continue to disclose all material information relating to its U.S.-related accounts. Other than the failure to disclose the additional eight U.S.-related accounts, Bonhôte has otherwise fully cooperated with the Department with respect to the bank’s obligations under the non-prosecution agreement and with the additional U.S.-related accounts.  

“The Department of Justice continues to examine the information provided by Swiss banks to the Department and will continue to work closely with our partners at the Internal Revenue Service to ensure that American taxpayers are meeting their reporting and tax obligations with respect to foreign bank accounts,” said Principal Deputy Assistant Attorney General Richard E. Zuckerman, head of the Tax Division.  “We expect banks to fully cooperate with the Department and continue to provide information about U.S. offshore accounts.”

Principal Deputy Assistant Attorney General Zuckerman thanked Senior Counsel for International Tax Matters and Coordinator of the Swiss Bank Program Thomas J. Sawyer, Senior Litigation Counsel Nanette L. Davis, and Trial Attorney Kimberle E. Dodd of the Tax Division.

July 20, 2019 in GATCA | Permalink | Comments (0)

Tuesday, May 7, 2019

Court Authorizes Service of John Doe Summonses Seeking Information About Finnish Residents Using Bank of America, Charles Schwab, and TD Bank Payment Cards Linked to Non-Finnish Bank Accounts

Justice Department Requested Authorization to Issue Summons Pursuant to Tax Treaty between the United States and Finland

A federal court in North Carolina authorized the Internal Revenue Service (IRS) to serve John Doe summonses on Bank of America, Charles Schwab, and TD Bank in an order that was unsealed yesterday, the Justice Department announced. The John Doe summonses seek information about persons residing in Finland that have Bank of America, Charles Schwab, or TD Bank payment cards linked to bank accounts located outside of Finland. The summonses are referred to as “John Doe” summonses because the IRS does not know the identity of the persons being investigated.

Attachment(s): 

“The Department of Justice and the IRS are committed to working with the United States’ international treaty partners to identify and stop individuals using hidden offshore accounts to evade tax laws,” said Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division. “The United States does not tolerate offshore tax evasion, nor does it sanction tax evasion committed through U.S. financial institutions.”

“Our continued success in combatting offshore tax noncompliance has been helped by the assistance we receive through the network of tax treaties around the globe,” said IRS Commissioner Charles Rettig. “Yesterday’s effort reflects that the U.S. will return this help by working under the law with tax administrators in other nations to help them in their fight against tax evasion and avoidance. A global economy should not be allowed to serve as a possible vehicle for tax evasion in any country.”

The United States petitioned the United States District Court for the Western District of North Carolina to authorize the summons at the request of the government of Finland under the tax treaty between Finland and the United States. That treaty allows the two countries to cooperate in exchanging information that is necessary for carrying out each country’s tax laws. The IRS summons seeks the identities of Finnish residents who have payment cards linked to bank accounts located outside of Finland so that the Finnish government can determine if those persons have complied with Finnish tax laws. Finland has advised the IRS that, in circumstances where the payment cards are used only at ATMs or in other transactions where authorization is by PIN code, and the cardholder need not identify himself or herself to the merchant, the cardholders cannot be identified from sources in Finland.

The filing does not allege that Bank of America, Charles Schwab, or TD Bank violated any U.S. or Finnish laws with respect to these accounts.

As described in the petition and supporting documents filed by the United States, the request is part of a foreign payment project being conducted by the Finnish Tax Administration (FTA), in which information on the use of payment cards issued by foreign financial institutions is used to identify non‑compliant Finnish taxpayers. Earlier FTA investigations of approximately 120 to 150 Finnish taxpayers who used foreign payment cards in a similar manner have yielded extremely high rates of tax non-compliance, as noted in the United States’ memo in support of the petition, which indicates that it is likely that the John Does sought by the summons are Finnish residents who are failing to report these foreign accounts and associated income.

The court order in this case authorizing this enforcement action is part of ongoing international efforts by the United States and its treaty partners to stop persons from using foreign financial accounts to evade taxes. Courts have previously approvedJohn Doe summonses allowing the IRS to identify individuals using offshore accounts to evade their U.S. obligations, and have also approved John Doe summonses to be used to identify individuals using U.S. financial institutions or accounts to evade foreign tax obligations.

May 7, 2019 in GATCA | Permalink | Comments (0)

Friday, May 3, 2019

Court Authorizes Service of John Doe Summonses Seeking Information About Finnish Residents Using Bank of America, Charles Schwab, and TD Bank Payment Cards Linked to Non-Finnish Bank Accounts

A federal court in North Carolina authorized the Internal Revenue Service (IRS) to serve John Doe summonses on Bank of America, Charles Schwab, and TD Bank in an order that was unsealed yesterday, the Justice Department announced. The John Doe summonses seek information about persons residing in Finland that have Bank of America, Charles Schwab, or TD Bank payment cards linked to bank accounts located outside of Finland. The summonses are referred to as “John Doe” summonses because the IRS does not know the identity of the persons being investigated.

“The Department of Justice and the IRS are committed to working with the United States’ international treaty partners to identify and stop individuals using hidden offshore accounts to evade tax laws,” said Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division. “The United States does not tolerate offshore tax evasion, nor does it sanction tax evasion committed through U.S. financial institutions.”

“Our continued success in combatting offshore tax noncompliance has been helped by the assistance we receive through the network of tax treaties around the globe,” said IRS Commissioner Charles Rettig. “Yesterday’s effort reflects that the U.S. will return this help by working under the law with tax administrators in other nations to help them in their fight against tax evasion and avoidance. A global economy should not be allowed to serve as a possible vehicle for tax evasion in any country.”

The United States petitioned the United States District Court for the Western District of North Carolina to authorize the summons at the request of the government of Finland under the tax treaty between Finland and the United States. That treaty allows the two countries to cooperate in exchanging information that is necessary for carrying out each country’s tax laws. The IRS summons seeks the identities of Finnish residents who have payment cards linked to bank accounts located outside of Finland so that the Finnish government can determine if those persons have complied with Finnish tax laws. Finland has advised the IRS that, in circumstances where the payment cards are used only at ATMs or in other transactions where authorization is by PIN code, and the cardholder need not identify himself or herself to the merchant, the cardholders cannot be identified from sources in Finland.

The filing does not allege that Bank of America, Charles Schwab, or TD Bank violated any U.S. or Finnish laws with respect to these accounts.

As described in the petition and supporting documents filed by the United States, the request is part of a foreign payment project being conducted by the Finnish Tax Administration (FTA), in which information on the use of payment cards issued by foreign financial institutions is used to identify non‑compliant Finnish taxpayers. Earlier FTA investigations of approximately 120 to 150 Finnish taxpayers who used foreign payment cards in a similar manner have yielded extremely high rates of tax non-compliance, as noted in the United States’ memo in support of the petition, which indicates that it is likely that the John Does sought by the summons are Finnish residents who are failing to report these foreign accounts and associated income.

The court order in this case authorizing this enforcement action is part of ongoing international efforts by the United States and its treaty partners to stop persons from using foreign financial accounts to evade taxes. Courts have previously approvedJohn Doe summonses allowing the IRS to identify individuals using offshore accounts to evade their U.S. obligations, and have also approved John Doe summonses to be used to identify individuals using U.S. financial institutions or accounts to evade foreign tax obligations.

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

May 3, 2019 in GATCA | Permalink | Comments (0)

Sunday, March 24, 2019

FATCA Final Regulations Released With Changes to Proposed Regs Relating to Verification and Certification Requirements for Certain Entities and Reporting by Foreign Financial Institutions

This final regulation document finalizes (with limited revisions) certain proposed regulations. The final regulations provide compliance requirements and verification procedures for sponsoring entities of foreign financial institutions (FFIs) and certain non-financial foreign entities (NFFEs), trustees of certain trustee-documented trusts, registered deemed-compliant FFIs, and financial institutions that implement consolidated compliance programs (compliance FIs). These final regulations affect certain financial institutions and NFFEs.

Download Reporting officer regs 2019

The proposed regulations require a sponsoring entity of a sponsored FFI to appoint a responsible officer to oversee the compliance of the sponsoring entity with respect to each sponsored FFI. The term responsible officer with respect to a sponsoring entity is an officer of the sponsoring entity with sufficient authority to fulfill the duties of a responsible officer. The proposed regulations require the responsible officer of a sponsoring entity to be an individual who is an officer of the sponsoring entity because the certifications required under these regulations should be made by the individual in the best position to know and represent whether the sponsoring entity is complying with its obligations.

The IRS understands that in practice, the person in the best position to know and represent if the sponsoring entity is complying with its obligations under these regulations may be an individual other than an officer of the sponsoring entity given industry practices established by managers and administrators of investment funds and similar vehicles for both chapter 4 and operational purposes. Therefore, these final regulations define responsible officer with respect to a sponsoring entity to include an officer of an entity that establishes and maintains policies and procedures for, and has general oversight over, the sponsoring entity, provided such individual has sufficient authority to fulfill the duties of a responsible officer.

These final regulations revise the definition of a responsible officer of a financial institution or sponsoring entity that is an investment entity to include, in addition to an officer of such entity, an individual who is a director, managing member, or general partner of such entity, or, if the general partner or managing member of the investment entity is itself an entity, an individual who is an officer, director, managing member, or general partner of such other entity.

Coordination of Certification Requirements for Compliance FIs and Sponsoring Entities of Sponsored FFIs or Sponsored Direct Reporting NFFEs

No changes.

The requirement for a Written Sponsorship Agreement

These final regulations retain the requirement that a sponsoring entity have a written sponsorship agreement in place with each sponsored FFI. A written sponsorship agreement memorializes the agreement between the parties, which helps to ensure compliance. However, these final regulations provide that the written sponsorship agreement may be part of another agreement between the sponsoring entity and the sponsored FFI provided it refers to the requirements of a sponsored FFI under FATCA. For example, a provision in a fund manager agreement that states that the sponsoring entity agrees to satisfy the sponsored FFI's FATCA obligations would be sufficient.

Additionally, the proposed regulations do not specify when a sponsorship agreement must be in place for purposes of a sponsoring entity's certification requirements. To allow sufficient time for a sponsoring entity to enter into sponsorship agreements (or revise existing agreements), these final regulations provide that a sponsoring entity of a sponsored FFI must have the written sponsorship agreement in place with such sponsored FFI by the later of March 31, 2019, or the date when the sponsoring entity begins acting as a sponsoring entity for such sponsored FFI. [See § 1.1471-5(j)(6)]. These final regulations include similar rules for a sponsoring entity of a sponsored direct reporting NFFE regarding the date by which the written sponsorship agreement must be in place and that it need not be a standalone agreement. [See § 1.1472-1(f)(4)].

Extension of Time for Certifications for the Certification Period Ending on December 31, 2017, for Sponsoring Entities of Sponsored FFIs or Sponsored Direct Reporting NFFEs and Trustees of Trustee-Documented Trusts

These final regulations address the comment by providing additional time for sponsoring entities to make certifications that would otherwise be due on July 1, 2018. Under these final regulations, certifications by sponsoring entities and trustees of trustee-documented trusts for the certification period ending on December 31, 2017, must be submitted on or before March 31, 2019.

Registration by a Sponsored FFI or Sponsored Direct Reporting NFFE After Termination of the Sponsoring Entity by the IRS

IRC Section 267(b) describes certain relationships among individuals, corporations, trusts, tax-exempt organizations, and S corporations. The rules described in this paragraph are intended to prevent a sponsored FFI or sponsored direct reporting NFFE from registering under an entity that is related to the terminated sponsoring entity, such as an entity under common control with the terminated sponsoring entity. However, the proposed regulations inadvertently omitted certain relationships between sponsoring entities that are partnerships.

These final regulations correct this omission by providing that the rules described in this paragraph generally prohibit registration by a sponsored FFI or sponsored direct reporting NFFE under a sponsoring entity that has a relationship described in IRC Sections 267(b) or 707(b) to the terminated sponsoring entity. Thus, for example, a sponsored FFI of a terminated sponsoring entity that is a partnership may not register under another sponsoring entity that is a partnership if the same person owns, directly or indirectly, more than 50 percent of capital interests or profits interests of both sponsoring entities. Additionally, these final regulations conform the rule for sponsored direct reporting NFFEs with the rule for sponsored FFIs by allowing a sponsored direct reporting NFFE to register under a sponsoring entity, notwithstanding that there is the impermissible relationship described in this paragraph, if the sponsored direct reporting NFFE obtains written approval from the IRS.

Sponsored Entities Located in a Model 1 IGA Jurisdiction

The preamble to the proposed regulations provides that a financial institution covered by a Model 1 IGA that chooses to qualify as a sponsored FFI under § 1.1471-5(f) instead of Annex II of the Model 1 IGA must satisfy all of the requirements of the regulations applicable to such an entity. 82 FR 1629 at 1631. Comments requested that a financial institution located in a jurisdiction with a Model 1 IGA that does not include a sponsored entity as a type of nonreporting financial institution in Annex II be allowed to comply with local guidance on sponsored entities or the Model 1 IGA Annex II rather than the regulations. The Treasury Department and the IRS are open to discussing the issue with the competent authorities of affected jurisdictions.

Nonsubstantive Changes

These final regulations include several minor nonsubstantive changes to the proposed regulations. Section 1.1471-4(f)(2)(ii)(B)(1) was reorganized for clarity. Minor clarifying edits were made in §§ 1.1471-4(f)(3)(i), 1.1471-5(f)(1)(i)(F)(4), (f)(1)(iv) introductory text, (f)(1)(iv)(A) and (B), (f)(2)(iii)(E), (j)(3)(ii) and (iii), (j)(4)(ii), (j)(5) and (6), (k)(4)(i), (ii), (iii), and (v), and (l)(2)(ii) and (iii), and 1.1472-1(f)(2)(ii) and (iii), (f)(3)(ii), (f)(4)(vii), and (g)(4)(i), (ii), and (iii).

How Many Impacted Entities?

The collection of information is on a certification filed with the IRS regarding the filer's compliance with its chapter 4 requirements. This information is required to enable the IRS to verify that a taxpayer is complying with its requirements under chapter 4. Certifications are required from compliance FIs, sponsoring entities, and Start Printed Page 10979trustees of trustee-documented trusts. Information on the estimated number of compliance FIs, sponsoring entities, and trustees of trustee-documented trusts required to submit a certification under these final regulations is shown in table 1.

Table 1

Number of respondents (estimated)
Compliance FIs 5,000-10,000
Sponsoring entities and trustees of trustee-documented trusts 10,000-15,000

Information on the number of compliance FIs, sponsoring entities, and trustees of trustee-documented trusts shown in table 1 is from the IRS's FATCA registration data. Comments are requested on the estimated number of respondents.

FATCALexisNexis® Guide to FATCA and CRS Compliance

This two-volume set provides a framework for meaningful interactions regarding legal analysis of term and compliance criteria among enterprise stakeholders, between the FATCA Compliance Officer and the FATCA advisors, and with the government authorities. by William H. Byrnes, IV (Author)
 
The LexisNexis® Guide to FATCA & CRS Compliance provides a framework for meaningful interactions among enterprise stakeholders, and between the FATCA Compliance Officer and the FATCA advisors/vendors. Analysis of the complicated regulations, recognition of overlapping complex regime and intergovernmental agreement requirements (e.g. FATCA, Qualified Intermediary, source withholding, national and international information exchange, European Union tax information exchange, information confidentiality laws, money laundering prevention, risk management, and the application of an IGA) is balanced with substantive analysis and descriptive examples. The contributors hail from several countries and an offshore financial center and include attorneys, accountants, information technology engineers, and risk managers from large, medium and small firms and from large financial institutions. Thus, the challenges of the FATCA Compliance Officer are approached from several perspectives and contextual backgrounds.

This eight edition (2019) of LexisNexis® Guide to FATCA & CRS Compliance has been vastly improved based on over 50 in-house workshops and interviews with tier 1 banks, with company and trusts service providers, with government revenue departments, and with central banks. The enterprises are headquartered in the Caribbean, Latin America, Asia, Europe, and the United States, as are the revenue departments and the central bank staff interviewed.

Several new contributing authors joined the FATCA/CRS Expert Contributor team this edition. This eigth edition has been expanded by new chapters and now totals 98 chapters, growing to over 2,100 pages of regulatory and compliance analysis based upon industry feedback of internal challenges with systems implementation. All chapters have been substantially updated and expanded in this edition, including many more practical examples to assist a compliance officer contextualize the FATCA and CRS regulations, IGA provisions, and national rules enacted pursuant to an IGA. The new chapters include by example an in-depth analysis of designing a FATCA and CRS internal policy, designing an equivalent form to the W-8 that captures CRS criteria, reporting accounts, reporting payments, operational specificity of the mechanisms of information capture, management and exchange by firms and between countries, insights as to the application of FATCA and the IGAs within BRIC, Asian, and European country chapters, and a project management schedule for the compliance officer.

March 24, 2019 in GATCA | Permalink | Comments (0)

Saturday, March 23, 2019

Global Forum on tax transparency reveals compliance ratings for further seven jurisdictions

The Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) published today seven peer review reports assessing compliance with the international standard on transparency and exchange of information on request(EOIR).

 

These reports are part of the second round of Global Forum reviews which assess jurisdictions against the updated standard which incorporates beneficial ownership information of all relevant legal entities and arrangements, in line with the definition used by the Financial Action Task Force Recommendations.

The seven jurisdictions reviewed – Hong Kong (China)LiechtensteinLuxembourgthe NetherlandsNorth MacedoniaSpain and the Turks and Caicos Islands were rated “Largely Compliant”. These jurisdictions have demonstrated their progress on the deficiencies identified in the first round of reviews, including improving access to information, developing broader EOI agreement networks, monitoring the handling of increasing incoming EOI requests.  These new reports also issue recommendations to the seven jurisdictions, in particular towards improving the measures related to the availability of beneficial ownership of all relevant entities and arrangements, as required in the strengthened standard.

The Global Forum, which will be celebrating its 10th year anniversary later this year, is the leading multilateral body mandated to ensure that jurisdictions around the world adhere to and effectively implement both the standard of transparency and exchange of information on request and the standard of automatic exchange of financial account information. This objective is achieved through a robust monitoring and peer review process. 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, its 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.

 

March 23, 2019 in GATCA | Permalink | Comments (0)

Sunday, March 17, 2019

Mizrahi-Tefahot Bank LTD. Admits Its Employees Helped U.S.Taxpayers Conceal Income and Assets

Bank Admits for Years It Opened and Maintained Customer Accounts in Violation of Agreement with the Internal Revenue Service; Agrees to Pay $195 Million as Part of a Deferred Prosecution Agreement with the Justice Department

Mizrahi-Tefahot Bank Ltd., (Mizrahi-Tefahot) and its subsidiaries, United Mizrahi Bank (Switzerland) Ltd. (UMBS) and Mizrahi Tefahot Trust Company Ltd.  (Mizrahi Trust Company), entered into a deferred prosecution agreement (DPA) with the Department of Justice filed today in the U.S. District Court for the Central District of California, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Department of Justice’s Tax Division, First Assistant United States Attorney Tracy L. Wilkison, and Chief Don Fort for Internal Revenue Service-Criminal Investigation.  As part of the agreement, Mizrahi-Tefahot will pay $195 million to the United States.

Mizrahi-Tefahot is one of Israel’s largest banks, with more than 4,000 employees, and is publicly traded on the Tel-Aviv Stock Exchange. During the relevant period of criminal activity, Mizrahi-Tefahot had branches in Los Angeles, California, the Cayman Islands, and London, England. In 2014, the Cayman Islands branch surrendered its license and was closed. UMBS, a subsidiary of Mizrahi-Tefahot, had one branch in Zurich, Switzerland. Mizrahi Trust Company, a fully owned subsidiary of Mizrahi-Tefahot, operated under the regulatory authority of the Bank of Israel. Collectively, Mizrahi-Tefahot, UMBS, and Mizrahi Trust Company provided private banking, wealth management, and financial services to high-net-worth individuals and entities around the world, including U.S. citizens, resident aliens and permanent residents.

“Mizrahi-Tefahot’s admission of guilt and agreement with the United States to pay significant penalties and pay over the fees earned from knowingly assisting tax evading Americans reflects the continuing efforts of the Tax Division to end the criminal role of international financial institutions in perpetuating offshore tax fraud,” said Principal Deputy Assistant Attorney General Zuckerman. “A financial institution is not a faceless entity, but is the embodiment of the acts of its bankers, relationship managers and all employees. When a bank’s employees, at any level, facilitate U.S. tax fraud, the bank facilitates tax fraud and will be held responsible.”

“For over a decade, this Israeli bank, through its employees, engaged in conduct designed to hide its clients’ funds so they could avoid paying U.S. income taxes,” said First Assistant United States Attorney Tracy L. Wilkison, “Mizrahi-Tefahot solicited customers in Los Angeles and other U.S. cities to open offshore accounts with the hope they would never be linked to the American clients. As a result of this criminal conduct, the bank will surrender fees it earned, repay the United States for lost tax revenue, and pay a substantial fine.”

“Today’s announcement sends a clear message that banks, who promote the use of offshore tax schemes against the United States, will be held accountable and face substantial fines and penalties,” said Don Fort, Chief, IRS-Criminal Investigation. “Any financial institution – no matter where it operates – will be held accountable if it helps U.S. residents dodge their tax responsibilities. This agreement with Mizrahi-Tefahot is the latest notice to American taxpayers, who might flout the law, that we can and will uncover your hidden assets.”

In the DPA and related court documents, Mizrahi-Tefahot admitted that from 2002 until 2012 the actions of its bankers, relationship managers, and other employees defrauded the United States and specifically the Internal Revenue Service (IRS) with respect to taxes by conspiring with U.S. taxpayer-customers and others. Mizrahi-Tefahot employees’ acts of opening and maintaining bank accounts in Israel and elsewhere around the world and violating Mizrahi-Tefahot’s Qualified Intermediary Agreement (QI Agreement) with the IRS enabled U.S. taxpayers to hide income and assets from the IRS.

According to the filed statement of facts and the DPA, these employees took steps to assist U.S. customers in concealing their ownership and control of assets and funds held at Mizrahi-Tefahot, Mizrahi Trust Company and UMBS, which enabled those U.S. customer-taxpayers to evade their U.S. tax obligations, including:

  • Assisting and referring U.S. customers to professionals to open and maintain accounts at Mizrahi-Tefahot and UMBS in the names of pseudonyms, code names, Mizrahi Trust, and foreign nominee entities in offshore locations, such as St. Kitts and Nevis (Nevis), Liberia, Turks & Caicos, and the British Virgin Islands (BVI), and thereby enabling those U.S. taxpayers to conceal their beneficial ownership in the accounts and maintain undeclared accounts;
  • Opening customer accounts at Mizrahi-Tefahot and UMBS for known U.S. customers using non-U.S. forms of identification, and failing to maintain copies of required identification and account opening documents;
  • Opening and maintaining foreign nominee bank accounts for certain U.S. clients holding U.S. securities, enabling those U.S. taxpayers to evade U.S reporting requirements on securities’ earnings in violation of Mizrahi-Tefahot’s QI Agreement with the IRS;
  • Entering into “hold mail” agreements with U.S. customers whereby Mizrahi-Tefahot and UMBS employees held bank statements and other account-related mail in their offices in Israel and Switzerland, and by doing so enabling documents reflecting the existence of the offshore accounts to remain outside the U.S.;
  • Until 2008, providing U.S. customers at Mizrahi-Tefahot’s Los Angeles branch use of their funds held in offshore Mizrahi-Tefahot and UMBS accounts (pledge accounts) through back-to-back loans, while excluding any record of the offshore pledge account at its Los Angeles branch to take advantage of Israeli and Swiss privacy laws and prevent disclosure of the funds to U.S tax authorities;
  • Failing to adhere to the requirements of Mizrahi-Tefahot’s QI Agreement by (i) permitting U.S. customers who refused to provide the bank with the proper IRS Forms W-8BEN and/or W-9 to continue trading in accounts holding U.S. securities, (ii) transferring assets to foreign entity accounts controlled by U.S. customers to avoid the proper QI reporting requirements, and (iii) failing to timely address compliance deficiencies in U.S. customer accounts holding U.S. securities; and
  • Until 2008, periodically sending “Roving Representatives,” to the United States to solicit new customers and to meet with existing U.S. customers in Los Angeles, California, New York, and other locations in the U.S. for the purposes of opening accounts and surreptitiously reviewing and managing existing customers’ offshore accounts.

According to the terms of the DPA, Mizrahi-Tefahot, UMBS, and Mizrahi Trust Company will cooperate fully, subject to applicable laws and regulations, with the United States, the IRS, and other U.S. authorities.  The DPA provides that Mizrahi-Tefahot will ensure that all of its overseas branches and other companies under its control that provide financial services to customers covered by the Foreign Account Tax Compliance Act, 26 U.S.C. §§ 1471-1474 (FATCA), will continue to implement and maintain an effective program of internal controls with respect to compliance with FATCA in their affiliates and subsidiaries.  The DPA also requires Mizrahi-Tefahot and its subsidiaries affirmatively to disclose certain material information it may later uncover regarding U.S.-related accounts, as well as to disclose certain information consistent with the Department’s Swiss Bank Program with respect to accounts closed between Jan. 1, 2009, and October 2017.  Under the DPA, prosecution against the bank for conspiracy will be deferred for an initial period of two years to allow Mizrahi-Tefahot, UMBS, and Mizrahi Trust Company to comply with the DPA’s terms. 

The $195 million payment consists of: 1) restitution in the amount of $53 million, representing the approximate unpaid pecuniary loss to the United States as a result of the criminal conduct; 2) disgorgement in the amount of $24 million, representing the approximate gross fees paid to the bank by U.S. taxpayers with undeclared accounts at the bank from 2002 through 2012; and 3) a fine of $118 million.

This agreement marks the second time an Israeli bank has admitted to similar criminal conduct.  In December 2014, the Bank Leumi Group entered into a DPA with the Department of Justice admitting that it conspired to aid and assist U.S. taxpayers to prepare and present false tax returns to the IRS by hiding income and assets in offshore bank accounts in Israel and elsewhere around the world. 

Principal Deputy Assistant Attorney General Zuckerman, First Assistant United States Attorney Wilkison and Chief Fort commended special agents of IRS-Criminal Investigation, who investigated this case, and Western Criminal Enforcement Section Chief Larry J. Wszalek and Trial Attorneys Melissa S. Grinberg and Lisa L. Bellamy of the Tax Division, who prosecuted this case.  Principal Deputy Assistant Attorney General Zuckerman also thanked the United States Attorney’s Office for the Central District of California for their substantial assistance.  

March 17, 2019 in AML, GATCA | Permalink | Comments (0)

Thursday, February 14, 2019

FATCA - Do taxpayers need a right to know foreign government will receive their private financial information from IRS?

INTERGOVERNMENTAL AGREEMENTS (IGAS): Amend Internal Revenue Code § 1474 to Allow a Period of Notice and Comment on New Intergovernmental Agreements (IGAs) and to Require That the IRS Notify Taxpayers Before Their Data Is Transferred to a Foreign Jurisdiction Pursuant to These IGAs, Unless Unique and Compelling Circumstances Exist

EXAMPLE

Taxpayer is a citizen of the U.S. but is currently a resident of a foreign country. The U.S. and the foreign country enter into an IGA, which contemplates the reciprocal sharing of  axpayert information. Once the IGA is in force and the U.S. has done as much as it can to confirm that the cybersecurity measures of the foreign country are satisfactory, the reciprocal exchange of information begins. As part of that exchange, Taxpayer’s personal information is provided to the foreign country without Taxpayer’s specific knowledge. Once the information arrives in the foreign country and is beyond the continuing oversight of the IRS, a data breach occurs. As a result, Taxpayer’s personal information is exposed and taxpayer becomes the victim of identity theft.

Unlike in the U.S., the foreign country does not follow the practice of alerting taxpayers when data breaches occur. Thus, the identity theft results in substantial economic damage to Taxpayer in part because Taxpayer remains unaware of the data breach until unauthorized account activity begins to appear. Moreover, Taxpayer’s risk for subsequent damage has effectively been doubled by the circumstance that Taxpayer’s personal information now is maintained in two different jurisdictions, thereby increasing exposure to unauthorized disclosure or improper use of that information.

Read the proposal at Download ARC18_Volume1_LR_06_IGAS

February 14, 2019 in GATCA | Permalink | Comments (0)

Thursday, December 13, 2018

IRS Issues Proposed FATCA Regulations Impacting WIthholding on Gross Proceeds and Insurance Premiums. Kicks the Can on Passthru Withholding.

The Treasury released 50 pages of FATCA proposed regulation changes today. 

For an in-depth discussion, see the 2,500 page Analytical Treatise for FATCA and CRS Compliance here. The Guide to FATCA & CRS Compliance provides 2,500 of analysis and a framework for meaningful interactions among enterprise stakeholders, and between the FATCA/CRS Compliance Officer and the FATCA/CRS advisors/vendors. Analysis of the complicated regulations, recognition of overlapping complex regime and intergovernmental agreement requirements (e.g. FATCA, CRS, Qualified Intermediary, source withholding, national and international information exchange, European Union tax information exchange, information confidentiality laws, money laundering prevention, risk management, and the application of an IGA) is balanced with substantive analysis and descriptive examples. The contributors hail from several countries and an offshore financial center and include attorneys, accountants, information technology engineers, and risk managers from large, medium and small firms and from large financial institutions. Thus, the challenges of the FATCA / CRS Compliance Officer are approached from several perspectives and contextual backgrounds.

  1. Elimination of Withholding on Payments of Gross Proceeds from the Sale or Other Disposition of Any Property of a Type Which Can Produce Interest or Dividends from Sources Within the United States

Under IRC Sections 1471(a) and 1472, withholdable payments made to certain foreign financial institutions (FFIs) and certain non-financial foreign entities (NFFEs) are subject to withholding under Chapter 4. IRC Section 1473(1) states that the term “withholdable payment” means: (i) Any payment of interest (including any original issue discount), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income, if such payment is from sources within the United States; and (ii) any gross proceeds from the sale or other disposition of any property of a type which can produce interest or dividends from sources within the United States.

The 2017 Chapter 4 regulations provide that such withholding will begin on January 1, 2019. Many U.S. and foreign financial institutions, foreign governments, the Treasury Department, the IRS, and other stakeholders have devoted substantial resources to implementing FATCA withholding on withholdable payments. At the same time, 87 jurisdictions have an IGA in force or in effect and 26 jurisdictions are treated as having an IGA in effect because they have an IGA signed or agreed in substance, which allows for international cooperation to facilitate FATCA implementation. The Treasury Department determined that the current withholding requirements under chapter 4 on U.S. investments already serve as a significant incentive for FFIs investing in U.S. securities to avoid status as nonparticipating FFIs, and that withholding on gross proceeds is no longer necessary in light of the current compliance with FATCA.

The 2019 proposed regulations eliminate withholding on gross proceeds by removing gross proceeds from the definition of the term “withholdable payment” in §1.1473-1(a)(1) and by removing certain other provisions in the Chapter 4 regulations that relate to withholding on gross proceeds. As a result of these proposed changes to the Chapter 4 regulations, only payments of U.S. source FDAP that are withholdable payments under §1.1473-1(a) and that are not otherwise excepted from withholding under §1.1471-2(a) or (b) would be subject to withholding under sections 1471(a) and 1472.

2. Deferral of Withholding on Foreign Passthru Payments

An FFI that has an agreement described in IRC Section 1471(b) in effect with the IRS is required to withhold on any passthru payments made to its recalcitrant account holders and to FFIs that are not compliant with chapter 4 (nonparticipating FFIs). IRC Section 1471(d)(7) defines a “passthru payment” as any withholdable payment or other payment to the extent attributable to a withholdable payment.

The 2017 chapter 4 regulations provide that such withholding will not begin until the later of January 1, 2019, or the date of publication in the Federal Register of final regulations defining the term “foreign passthru payment.”  2018’s proposed regulation §1.1471-4(b)(4), a participating FFI will not be required to withhold tax on a foreign passthru payment made to a recalcitrant account holder or nonparticipating FFI before the date that is two years after the date of publication in the Federal Register of final regulations defining the term “foreign passthru payment.” The proposed regulations also make conforming changes to other provisions in the Chapter 4 regulations that relate to foreign passthru payment withholding.

Notwithstanding these proposed amendments, the Treasury Department remains concerned about the long-term omission of withholding on foreign passthru payments. Withholding on foreign passthru payments serves important purposes. First, it provides one way for an FFI that has entered into an FFI agreement to continue to remain in compliance with its agreement, even if some of its account holders have failed to provide the FFI with the information necessary for the FFI to properly determine whether the accounts are U.S. accounts and perform the required reporting, or, in the case of account holders that are FFIs, have failed to enter into an FFI agreement. Second, withholding on foreign passthru payments prevents nonparticipating FFIs from avoiding FATCA by investing in the United States through a participating FFI “blocker.” For example, a participating FFI that is an investment entity could receive U.S. source FDAP income free of withholding under Chapter 4 and then effectively pay the amount over to a nonparticipating FFI as a corporate distribution. Despite being attributable to the U.S. source payment, the payment made to the nonparticipating FFI may be treated as foreign source income and therefore not a withholdable payment subject to Chapter 4 withholding. Accordingly, the Treasury Department continues to consider the feasibility of a system for implementing withholding on foreign passthru payments. 

3. Elimination of Withholding on Non-Cash Value Insurance Premiums Under Chapter 4

The 2019 proposed regulations provide that premiums for insurance contracts that do not have cash value (as defined in §1.1471-5(b)(3)(vii)(B)) are excluded nonfinancial payments and, therefore, not withholdable payments.

4. Clarification of Definition of Investment Entity

The clarification in these proposed regulations is similar to the guidance published by the OECD interpreting the definition of a “managed by” investment entity under the Common Reporting Standard.

5. Modifications to Due Diligence Requirements of Withholding Agents Under Chapters 3 and 4

These proposed regulations include several changes to the rules on treaty statements provided with documentary evidence.

  • Extend the time for withholding agents to obtain treaty statements with the specific LOB provision identified for preexisting accounts until January 1, 2020 (rather than January 1, 2019).
  • Add exceptions to the three-year validity period for treaty statements provided by tax exempt organizations (other than tax-exempt pension trusts or pension funds), governments, and publicly traded corporations, entities whose qualification under an applicable treaty is unlikely to change.[1]
  • Correct an inadvertent omission of the actual knowledge standard for a withholding agent’s reliance on the beneficial owner’s identification of an LOB provision on a treaty statement provided with documentary evidence, the same as the standard that applies to a withholding certificate used to make a treaty claim.[2]

These three proposed amendments will also be incorporated into the 2017 QI agreement and 2017 WP and WT agreements, and a QI, WP, or WT may rely upon these proposed modifications until such time.

Permanent residence address subject to hold mail instruction for Chapters 3 and 4

The proposed regulations provide that the documentary evidence required in order to treat an address that is provided subject to a hold mail instruction as a permanent residence address is documentary evidence that supports the person’s claim of foreign status or, for a person claiming treaty benefits, documentary evidence that supports the person’s residence in the country where the person claims treaty benefits.

Regardless of whether the person claims treaty benefits, the documentary evidence on which a withholding agent may rely is the documentary evidence described in §1.1471- 3(c)(5)(i), without regard to the requirement that the documentation contains a permanent residence address.

Proposed §1.1471-1(b)(62) adds a definition of a hold mail instruction to clarify that a hold mail instruction does not include a request to receive all correspondence (including account statements) electronically.

Revisions Related to Credits and Refunds of Overwithheld Tax

  • Withholding and reporting in a subsequent year
  • Adjustments to overwithholding under the reimbursement and set-off procedures
  • Reporting of withholding by nonqualified intermediaries

[1] See proposed § 1.1441-1(e)(4)(ii)(A)(2).

[2] See proposed § 1.1441-6(c)(5)(i).

Download FATCA 2019 Proposed Regulations

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

Friday, December 7, 2018

process for all voluntary disclosures (domestic and offshore) following the closing of the Offshore Voluntary Disclosure Program (2014 OVDP) on September 28, 2018

Background and Overview of Updated Procedures

The 2014 OVDP began as a modified version of the OVDP launched in 2012, which followed voluntary disclosure programs offered in 2011 and 2009. These programs were designed for taxpayers with exposure to potential criminal liability or substantial civil penalties due to a willful failure to report foreign financial assets and pay all tax due in respect of those assets. They provided taxpayers with such exposure potential protection from criminal liability and terms for resolving their civil tax and penalty obligations. Taxpayers with unfiled returns or unreported income who had no exposure to criminal liability or substantial civil penalties due to willful noncompliance could come into compliance using the Streamlined Filing Compliance Procedures (SFCP), the delinquent FBAR submission procedures, or the delinquent international information
return submission procedures. Although they could be discontinued at any time, these other programs are still available.

Procedures in this memo will be effective for all voluntary disclosures received after the closing of the 2014 OVDP on September 28, 2018. All offshore voluntary disclosures conforming to the requirements of “Closing the 2014 Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers” FAQ 3 received or postmarked by September 28, 2018 will be handled under the procedures of the 2014 OVDP. For all other voluntary disclosures (non-offshore) received on or before September 28, 2018, the Service has the discretion to apply the procedures outlined in this memorandum.

The objective of the voluntary disclosure practice is to provide taxpayers concerned that their conduct is willful or fraudulent, and that may rise to the level of tax and tax-related criminal acts, with a means to come into compliance with the law and potentially avoid criminal prosecution. Download Ovdp 2018 onward

Proper penalty consideration is important in these cases. A timely voluntary disclosure
may mitigate exposure to civil penalties. Civil penalty mitigation occurs by focusing on a
specific disclosure period and the application of examiner discretion based on all
relevant facts and circumstances including prompt and full cooperation (see IRM
9.5.11.9.4) during the civil examination of a voluntary disclosure. Managers must ensure
that penalties are applied consistently, fully developed, and documented in all cases.
The terms outlined in this memorandum are only applicable to taxpayers that make
timely voluntary disclosures and who fully cooperate with the Service.

 

December 7, 2018 in GATCA, Tax Compliance | Permalink | Comments (0)

Thursday, October 25, 2018

OECD clamps down on CRS avoidance through residence and citizenship by investment schemes

Residence and citizenship by investment (CBI/RBI) schemes, often referred to as golden passports or visas, can create the potential for misuse as tools to hide assets held abroad from reporting under the OECD/G20 Common Reporting Standard (CRS).

In particular, Identity Cards, residence permits and other documentation obtained through CBI/RBI schemes can potentially be abused to misrepresent an individual’s jurisdiction(s) of tax residence and to endanger the proper operation of the CRS due diligence procedures.

Therefore, and as part of its work to preserve the integrity of the CRS, today, the OECD has published the results of its analysis of over 100 CBI/RBI schemes offered by CRS-committed jurisdictions, identifying those schemes that potentially pose a high-risk to the integrity of CRS.

Potentially high-risk CBI/RBI schemes are those that give access to a low personal tax rate on income from foreign financial assets and do not require an individual to spend a significant amount of time in the jurisdiction offering the scheme. Such schemes are currently operated by Antigua and Barbuda, The Bahamas, Bahrain, Barbados, Colombia, Cyprus, Dominica, Grenada, Malaysia, Malta, Mauritius, Monaco, Montserrat, Panama, Qatar, Saint Kitts and Nevis, Saint Lucia, Seychelles, Turks and Caicos Islands, United Arab Emirates and Vanuatu.

Together with the results of the analysis, the OECD is also publishing practical guidance (see Frequently Asked Questions section) that will enable financial institutions to identify and prevent cases of CRS avoidance through the use of such schemes. In particular, where there are doubts regarding the tax residence(s) of a CBI/RBI user, the OECD has recommended further questions that a financial institution may raise with the account holder.

Moreover, a number of jurisdictions have committed to spontaneously exchanging information regarding users of CBI/RBI schemes with all original jurisdiction(s) of tax residence, which reduces the attractiveness of CBI/RBI schemes as a vehicle for CRS avoidance.

Going forward, the OECD will work with CRS-committed jurisdictions, as well as financial institutions, to ensure that the guidance and other OECD measures remain effective in ensuring that foreign income is reported to the actual jurisdiction of residence.

 

Further to the press coverage following yesterday's publication of the guidance for financial institutions on residence by investment (RBI) and citizenship by investment (CBI) schemes, the OECD would like to reiterate that the sole objective of the high-risk RBI/CBI schemes included in this guidance is to provide Financial Institutions with the right tools to identify accountholders that may misuse RBI/CBI schemes to circumvent the Common Reporting Standard (CRS) and carry out enhanced CRS due diligence procedures, where appropriate. This guidance was issued as part of the OECD's ongoing efforts to address any risks to the integrity of the CRS, including those arising from the possible misuse of RBI/CBI schemes.  

Since the release of the guidance, Monaco has provided additional information with respect to its residence and migration requirements confirming that information on relevant applicants is exchanged with all existing jurisdictions of residence. On this basis, the residence and immigration requirements do not give rise to particular risks to the integrity of the CRS and the guidance will be updated accordingly.

Residence/Citizenship by investment schemes

While residence and citizenship by investment (CBI/RBI) schemes allow individuals to obtain citizenship or residence rights through local investments or against a flat fee for perfectly legitimate reasons, they can also be potentially misused to hide their assets offshore by escaping reporting under the OECD/G20 Common Reporting Standard (CRS). In particular, Identity Cards and other documentation obtained through CBI/RBI schemes can potentially be misused abuse to misrepresent an individual’s jurisdiction(s) of tax residence and to endanger the proper operation of the CRS due diligence procedures.

Potentially high-risk CBI/RBI schemes are those that give access to a low personal income tax rate on offshore financial assets and do not require an individual to spend a significant amount of time in the location offering the scheme.

Financial Institutions are required to take the outcome of the OECD's analysis of high-risk CBI/RBI schemes into account when performing their CRS due diligence obligations. (Further detail is available in our Frequently Asked Questions section below).

The OECD has analysed over 100 CBI/RBI schemes, offered by CRS-committed jurisdictions, identifying the following schemes that potentially pose a high-risk to the integrity of CRS.

Last updated: 17 October 2018

Jurisdiction

Name of CBI/RBI scheme

Antigua and Barbuda

Antigua and Barbuda Citizenship by Investment

Antigua and Barbuda

Permanent Residence Certificate

Bahamas

Bahamas Economic Permanent Residency

Bahrain

Bahrain Residence by Investment

Barbados

Special Entry and Residence Permit

Colombia

Migrant (M) Visa – Category 6 or Category 10

Colombia

Residence Visa by Investment (R visa)

Cyprus

Citizenship by Investment: Scheme for Naturalisation of Investors in Cyprus by Exception

Cyprus

Residence by Investment

Dominica

Citizenship by Investment

Grenada

Grenada Citizenship by Investment

Malaysia

Malaysia My Second Home Programme

Malta

Malta Individual Investor Programme

Malta

Malta Residence and Visa Programme

Mauritius

Occupation Permit/Permanent Residence Permit

Montserrat

Economic Residency Programme of Montserrat

Panama

Friendly Nations Visa

Panama

Economic Solvency Visa

Panama

Reforestation Investor Visa

Qatar

Investor Residence Visa

Qatar

Residence Visa for Real Estate Owner

Saint Kitts and Nevis

Citizenship by Investment

Saint Kitts and Nevis

Residence by Investment

Saint Lucia

Citizenship by Investment Saint Lucia

Seychelles

Type 1 Investor Visa

Seychelles

Type 2 Investor Visa

Turks and Caicos Islands

Permanent Residence Certificate via Undertaking and Investment in a Home

Turks and Caicos Islands

Permanent Residence Certificate via Undertaking and Investment in a Business

Turks and Caicos Islands

Permanent Residence Certificate via Investment in a Designated Public Sector Project

Turks and Caicos Islands

Permanent Residence Certificate via Investment in a Home or Business

United Arab Emirates

UAE Residence by Investment

Vanuatu

Development Support Programme

Vanuatu

Self-Funded Visa

Vanuatu

Land-Owner Visa

Vanuatu

Investor Visa

The information in the table reflects the current state of the OECD’s analysis of CBI/RBI schemes and will be updated on an ongoing basis.

 
 

Frequently Asked Questions

This section will be updated on an ongoing basis.

What are CBI/RBI schemes?

"Citizenship by Investment" (CBI) and "Residence by Investment" (RBI) schemes are being offered by a substantial number of jurisdictions and allow foreign individuals to obtain citizenship or temporary or permanent residence rights on the basis of local investments or against a flat fee.

Individuals may be interested in these schemes for a number of legitimate reasons, including the wish to start a new business in the jurisdiction, greater mobility thanks to visa-free travel, better education and job opportunities for children, or the right to live in a country with political stability. At the same time, information released in the market place and obtained through the OECD's Common Reporting Standard (CRS) public disclosure facility, highlights the abuse of CBI/RBI schemes to circumvent reporting under the CRS.

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How can CBI/RBI schemes be misused to circumvent CRS reporting?

CBI/RBI schemes can be misused to undermine the CRS due diligence procedures. This may lead to inaccurate or incomplete reporting under the CRS, in particular when not all jurisdictions of tax residence are disclosed to the Financial Institution. Such a scenario could arise where an individual does not actually or not only reside in the CBI/RBI jurisdiction, but claims to be resident for tax purposes only in such jurisdiction and provides his Financial Institution with supporting documentation issued under the CBI/RBI scheme, for example a certificate of residence, ID card or passport.

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Which CBI/RBI schemes present a potentially high risk?

Not all RBI/CBI schemes present a high risk of being used to circumvent the CRS. Schemes that are potentially high-risk for these purposes are those that give a taxpayer access to a low personal income tax rate of less than 10% on offshore financial assets and do not require significant physical presence of at least 90 days in the jurisdiction offering the CBI/RBI scheme. This is based on the premise that most individuals seeking to circumvent the CRS via CBI/RBI schemes will wish to avoid income tax on their offshore financial assets in the CBI/RBI jurisdiction and would not be willing to fundamentally change their lifestyle by leaving their original jurisdiction of residence and relocating to the CBI/RBI jurisdiction.

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What should Financial Institutions do?

Under Section VII of the CRS, a Financial Institution may not rely on a self-certification or Documentary Evidence if the Financial Institution knows or has reason to know, that the self-certification or Documentary Evidence is incorrect or unreliable. The same applies with respect to Pre-existing High-Value Accounts where a relationship manager has actual knowledge that the self-certification or Documentary Evidence is incorrect or unreliable.

In making the determination whether a Financial Institution has reason to know that a self-certification or Documentary Evidence is incorrect or unreliable, it should take into account all relevant information available to the Financial Institution, including the results of the OECD's CBI/RBI risk analysis. As a result, where, taking into account all relevant information, the facts and circumstances would lead the Financial Institution to have doubts as to the tax residency(ies) of an Account Holder or Controlling Person, it should take appropriate measures to ascertain the tax residency(ies) of such persons.

To the extent that the doubt is related to the fact that the Account Holder or Controlling Person is claiming residence in a jurisdiction offering a potentially high-risk CBI/RBI scheme, FIs may consider raising further questions, including:

  • Did you obtain residence rights under an CBI/RBI scheme?
  • Do you hold residence rights in any other jurisdiction(s)?
  • Have you spent more than 90 days in any other jurisdiction(s) during the previous year?
  • In which jurisdiction(s) have you filed personal income tax returns during the previous year?

The responses to the above questions should assist Financial Institutions in ascertaining whether the provided self-certification or Documentary Evidence is incorrect or unreliable.

October 25, 2018 in GATCA | Permalink | Comments (0)

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)