The Internal Revenue Service on Monday launched an online registration program for the hundreds of…
Foreign Account Tax Compliance Act (FATCA): More Information Sharing Agreements Expected
FATCA was enacted in 2010 by Congress to target non-compliance by U.S. taxpayers using foreign accounts. FATCA requires foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.
FATCA had originally required overseas financial institutions to provide information directly to the Internal Revenue Service, potentially in breach of their home countries’ privacy laws. Those that did not comply faced, among other penalties, a 30% withholding tax on payments received from the US.
After heavy lobbying from foreign governments and banks, the US struck a deal with governments of the UK, France, Germany, Italy and Spain in February that allowed banks in those countries to submit information on US account holders through their own governments rather than directly to US tax authorities.
Last week the U.S. Treasury Department said that it has signed its first bilateral agreement with the United Kingdom to implement information reporting and withholding tax provisions under FATCA, allowing the two governments to share information about taxpayers from the U.S. and U.K. Mark Mazur, U.S. Treasury assistant secretary for tax policy, stated that the deal was a significant step forward. He said “We are pleased the United Kingdom, one of our closest allies, is the first jurisdiction to sign a bilateral agreement with us and we look forward to quickly concluding agreements based on this model with other jurisdictions.”
The Treasury Department also stated that it is in communication with several other governments that have expressed interest in concluding a similar bilateral agreement to implement FATCA and expects to sign additional bilateral agreements in the near future.
Today Switzerland’s Federal Council announced that it will soon begin negotiations with the United States over a framework agreement for simplified implementation of the FATCA regulations. If the Swiss government, reputed to be one of the most private banking centers of the world, is complying with FATCA, it is expected all other foreign governments will follow and cooperate with U.S.
The Treasury Department has provided a model agreement for other governments to sign. In the model agreement each foreign government must provide:
(1) the name, address, and U.S. tax identification number of each Specified U.S. Person that is an Account Holder of such account …
(2) the account number…;
(3) the name and identifying number of the Reporting Financial Institution;
(4) the account balance or value (including, in the case of a Cash Value Insurance Contract or Annuity Contract, the Cash Value or surrender value) as of the end of the relevant calendar year or other appropriate reporting period or, if the account was closed during such year, immediately before closure;
So what does this all mean to U.S. persons with undisclosed foreign accounts? Such persons should expect their foreign accounts to be eventually disclosed to the U.S. Treasury Department. When? Starting in 2013, many foreign financial institutions will be required to submit detailed information on their customers to the U.S. Treasury Department.
Taxpayers with undisclosed foreign accounts should be a concerned about FATCA’s far reaching implications. As a result, Taxpayers with undisclosed foreign accounts should consult a competent tax lawyer and consider participating in the 2012 OVDP program. Although the 2012 OVDP penalty regime may seem overly harsh for many, the decision to participate should include an economic analysis of the taxpayer’s projected future earnings that could be generated from the foreign funds. If a taxpayer is discovered before any voluntary disclosure submission, there could be harsh criminal (in addition to civil) penalties. The risks may outweigh the benefits.
Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists (and defends) clients and their advisors to legally disclose (and legitimize) foreign accounts.