More offshore banks can expect UBS-type treatment, says former IRS attorney
March 1, 2011
The IRS clampdown on Swiss bank UBS could be the tip of the
iceberg in its fight against tax evasion and financial institutions in
other offshore jurisdictions might be targeted for similar treatment.
It's
all part of the push for "full tax transparency", says Jonathan
Sambur, a former IRS attorney who now specializes in Tax Transactions
in the Washington, DC office of Mayer Brown law firm.
"Recent
public statements by U.S. regulators indicate that U.S. tax avoidance
and evasion is not limited to Switzerland," Mr. Sambur told
OffshoreAlert. "This is a worldwide issue and we can expect to see
financial institutions located in other jurisdictions be subject to
U.S. scrutiny and potential enforcement activity."
New
rules, initiatives and legislation, such as the Foreign Account Tax
Compliance Act, present major challenges for non-U.S. financial
institutions that do business with U. S. account-holders, says Mr.
Sambur.
"The
United States has begun to implement new legislation that demands
transparency from non-U.S. financial institutions. Beginning in 2013,
non-U.S. financial institutions that invest in U.S. securities will be
required to provide information about U.S. account holders directly to
the IRS outside of established tax treaty protocols or face substantial
penalties.
"The
push for full tax transparency relating to U.S. account holders has
been coupled with a newly-redesigned voluntary disclosure program
designed to bring noncompliant taxpayers into compliance and gather
additional information to identify non-U.S. financial institutions that
provide services to noncompliant U.S. taxpayers.
"The
IRS has also recently reissued a controversial proposal that would
provide certain U.S. bank account information to non-U.S.
jurisdictions, presumably, for those jurisdictions to properly enforce
its tax laws; it remains to be seen whether this proposal could be
implemented in light of the risk of capital flight from U.S. banks or
whether this was intended to mute criticism of IRS proposals to compel
non-U.S. financial institutions to provide similar data to the IRS."
All
of which represents a potential legal and bureaucratic nightmare for
financial institutions in offshore jurisdictions and their U.S.
clients, says Mr. Sambur.
"Non-U.S.
financial institutions that provide banking and investment services to
U.S. clients must take heed of recent U.S. enforcement activity,
assess the strength of their controls for complying with applicable
U.S. law, and consider whether they could be a target of future
enforcement efforts.
"U.S.
clients that engage in unreported banking and investment activities
with or through non-U.S. financial institutions should be aware that
the IRS is actively looking for them and few places remain where they
might remain hidden from U.S. tax authorities." |
