International Financial Law Prof Blog

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

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)

Tuesday, September 11, 2018

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

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

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

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

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

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

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

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

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

The Defendant:

ADRIAN BARON
Age: 63
Residence: Budapest, Hungary

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

Tuesday, September 4, 2018

Implementation of Nonresident Alien Deposit Interest Regulations

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

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

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

Friday, August 10, 2018

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

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

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

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

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

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

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

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

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

Thursday, August 9, 2018

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

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

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

Jack Townsend's analysis in his blog:

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

Wednesday, August 1, 2018

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Attachment(s): Download Mirelies NPA

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

Monday, July 30, 2018

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

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

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

Tuesday, July 24, 2018

OECD Concludes CRS Led To EUR 93 Billion Additional Revenue

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

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

Sunday, July 22, 2018

Justice Department Announces Resolution With NPB Neue Privat Bank AG

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Attachment(s): 

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

Wednesday, July 18, 2018

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

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

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

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

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

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

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

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

Friday, July 13, 2018

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

IMPACT ON TAXPAYERS

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

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

WHY TIGTA DID THE AUDIT

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

WHAT TIGTA FOUND

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

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

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

WHAT TIGTA RECOMMENDED

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

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

READ THE FULL REPORT

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

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

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

Wednesday, July 11, 2018

Canada Offshore Audits Result is Penalties and Tax Collections

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

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

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

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

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

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

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

 

Quotes

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

– The Honourable Diane Lebouthillier, Minister of National Revenue

Quick facts

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

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

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

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

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

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

Associated links

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