FATCA: Fear And Terror Caused by America

TaxConnections Picture - Fatca FlagFear And Terror Caused by America – FATCA is Here to Stay

FATCA Express Leaves the Station – Coming Soon to Your Hometown

Yesterday the Department of the Treasury and the United States Internal Revenue Service (IRS) issued Notice 2013-69 for foreign financial institutions (FFIs) to comply with the information reporting and withholding tax provisions of the Foreign Account Tax Compliance Act (FATCA). The US Congress enacted FATCA in 2010 as the ultimate method to identify US persons using foreign accounts and entities to evade US taxes. Back in 2010, very few believed that FATCA would survive. Indeed, its implementation has been delayed several times. Now, however, FATCA is rapidly becoming the global standard to stop offshore tax evasion. We are seeing many other countries implementing FATCA wannabe laws and applauding the US model. The Treasury Department has now signed nine so-called Intergovernmental Agreements (IGAs), negotiated 16 agreements in substance, and is engaged in FATCA bargaining discussions with many more countries. All aboard the FATCA Express!

Under FATCA, as enacted, foreign financial institutions are generally required to provide directly to the IRS, information about accounts held by US persons. Reporting will include the name, address and taxpayer identification number of each US account holder; the account number; account balance and value; the account’s gross receipts and gross withdrawals or payments; and other account related information requested by the IRS. If the institutions do not comply, they will be hit with a 30% withholding tax on all payments from US-sources, including proceeds on sales of US stocks and securities (effectively cutting the institution off from any profitable US investment opportunities).

Notice 2013-69, marks a very significant “next step” in FATCA’s continued progression around the globe. It previews proposed guidance. It also provides a draft agreement for participating FFIs signing a so-called Model 1 IGA and for those reporting more directly to the IRS, through a so-called Model 2 IGA. An IGA addresses situations under which laws of a foreign country could prevent an FFI from complying with the terms of the FFI agreement. For instance, by complying with FATCA’s requirements to provide customer information to the IRS, the financial institution could be violating local data privacy laws. Under a Model 1 IGA, FFIs report directly to their local government agency and the respective government then sends that information to the IRS. Under Model 2, FFIs report directly to the IRS to the extent that the account holder consents or such reporting is otherwise legally permitted by local laws. This direct reporting is supplemented by information pursuant to an information exchange agreement between the US and the foreign government with respect to non-consenting accounts.

Notice 2013-69 provides FFIs with advance notice prior to the start of FATCA withholding and account due diligence requirements on July 1, 2014. The FFI agreement, while still in draft form, will be finalized just in time for Christmas! Ho Ho Ho!

Fear And Terror Caused by America — What Does this Mean for You?

It is clear that the full force of FATCA will soon be felt globally. Any US person having undeclared foreign financial assets or accounts must take action before it is too late. Those who are still ‘hiding’ will eventually be caught out. By then, it will be too late to enter the IRS Offshore Voluntary Disclosure Program (OVDP). If you are not in compliance and have unreported income or assets, you must act now. The best advice is to consult a US tax attorney and obtain a full understanding of the possible civil and/or criminal implications you are facing. Learn about the latest OVDP and other options that you can consider. With the attorney examine the possible penalties and risks under each option.

If you think you are safe simply because you closed out your foreign account – think again. Looking at the recent Department of Justice Non-Prosecution Program for Swiss Banks, it is likely that the program will serve as a template for banks in many other countries. Under that Program, Banks are required to “look back” to US-related accounts that existed on August 1, 2008 and turn over the details to the US Government. This means that merely having closed out the account won’t help. In fact, closing out the account can serve as evidence against you for possible criminal intent.

The Importance of Attorney-Client Privilege

Only by consulting an attorney can the information and documentation you reveal be given protection from disclosure to the US tax authorities pursuant to the attorney-client privilege. Accountants and financial advisors do not have this privilege. If your matter must be worked on with such third parties, it is best if your attorney works under a so-called Kovel agreement which generally tries to extend the attorney-client privilege to information revealed to these persons.

In accordance with Circular 230 Disclosure

Virginia La Torre Jeker J.D., has been a member of the New York Bar since 1984 and is also admitted to practice before the United States Tax Court. She has 30 years of experience specializing in US and international tax planning as well as international commercial transactions. She has been based in Dubai since 2001; prior to that time she worked in Hong Kong for 15 years as a US tax consultant for international law firms, major banks (including HSBC) international accounting firms (Deloitte) and trust companies. Early in her career she worked in New York with the top-tier international law firm, Willkie Farr & Gallagher.

Virginia is regularly asked to speak at numerous conferences and seminars for various institutes and commercial organizations; publishes a vast array of scholarly works in her area of expertise, been interviewed by CNN and is regularly quoted (or has her articles featured) in local and international publications. She was recently appointed to the Professional Tax Advisory Council, American Citizens Abroad, Geneva, Switzerland. She was a guest lecturer at the University of Hong Kong, LL.M Program (Law Department) and served as an adjunct Business Law professor at the American University of Dubai and at the American University of Sharjah where she also taught the legal / ethical aspects of internet law and internet based transactions.


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