Offshore Perspectives: News Update – Globally Combating Tax Evasion

TWO NEW SWISS BANKS REACH JUSTICE AGREEMENT

On June 19th, 2015, the Department of Justice (DOJ) came to an agreement under the Swiss Bank Program with two new Swiss banks, Bank Linth LLB AG and Bank Sparhafen Zurich AG.

BANK LINTH

126 U.S.-related accounts are attributed to Bank Linth
Bank Linth holds over $102 million in assets
Bank Linth will pay a penalty of $4.15 million to the United States
BANK SPARHAFEN ZURICH

91 U.S.-related accounts are attributed to Bank Sparhafen Zurich
Bank Sparhafen Zurich holds over $25 million in assets
Bank Sparhafen Zurich will pay a penalty of $1.81 million to the United States
The aforementioned banks either directly or through the use of facilitators performed the following offshore schemes in a method to circumvent the payment of tax and reporting of foreign financial assets on behalf of United States taxpayers to the U.S. government:

Opened accounts for U.S. taxpayers through an external asset manager using sham foundations
Accepted records from directors of sham foundations that falsely represented the ownership of the assets in the account for U.S. federal income tax purposes
Agreed to open transfer accounts from Swiss banks that were under investigation by the DOJ
Assisted U.S. taxpayers with the completion of wavier forms directing the bank not to purchase U.S. securities and thereby avoiding disclosure of identity of the account holder
Offered clients hold-mail agreement options
Travel cash cards that allowed up to 10,000 in Swiss Francs, U.S. dollars or Euros so as to avoid transfer of money surveillance techniques
The non-prosecution agreements signed by these banks and the penalties paid will bring them back into compliance with the United States.

Any U.S. account holders that have not disclosed their foreign financial assets and/or unreported income properly should immediately seek the assistance of a Federally Authorized Tax Practitioner. For willful violators that have undisclosed accounts in the above banks or any others that have reached agreement with the DOJ it should be noted if pre-clearance into Ovdp is granted (i.e., the DOJ does not have the name of the account holder), then the offshore penalty is 50% as opposed to the standard penalty of 27.5%.

For non-willful violators, the Streamline Domestic, Streamline Foreign and Delinquent Fbar programs are still available. A legal determination of non-willfulness (or for the Delinquent Fbar program with reasonable cause) is crucial to success under one of these programs.

These two banks will be added to the current list of IRS foreign financial institutions or facilitators which will now count 25 institutions with the addition of these two banks.

THE END OF SWISS BANK SECRECY

Since the beginning of the Offshore Voluntary Disclosure Program in 2009 (OVDP), the DOJ offshore compliance initiative has produced thousands of disclosures over the ensuing years. These disclosures in conjunction with ongoing investigations and the help of whistleblowers eventually led to the collapse of Swiss Banking secrecy laws.

With the combination of FATCA and Swiss Leaks from HSBC, the Swiss government has recently decided to publish a list of all the names of perceived foreign tax evaders (also see recent blog post). This action allows such individuals to contest the publication via the courts. However, the real issue here is for those U.S. individuals or businesses that have yet to disclose their foreign financial information to the United States Government. The timeline for taking action is closing drastically.

Now that these names are published, these individuals or businesses may no longer be allowed to participate in Ovdp or Streamline filing. At a minimum, the Ovdp penalty rate for these taxpayers would likely jump to 50% as opposed to the standard rate of 27.5% as noted above.

Also, for Streamline filers, the certification on non-willfulness would likely be put into automatic examination, similar to those individuals disclosed under Fatca as having a recalcitrant account. Taxpayers whose names have been published on this list should immediately seek the advice and counsel of a Federally Authorized Tax Practitioner.

CONTESTED GLOBAL TAX EVASION PLAN IN THE WORKS BY OECD

The OECD’s Base Erosion and Profit Shifting (BEPS) plan has been a hot topic of discussion in the international tax practitioner community. If BEPS were implemented, it would require tax filing and reporting on account of the reality of a global economy.

The biggest requirement that BEPs would place on U.S. businesses would be that the companies would be required to file business tax returns in foreign countries that they conduct business activities in on a country-by-country basis, similar to the current obligations placed on businesses that operate in each U.S. state.

Not only do they have to file their federal tax return but potentially also state tax returns. Needless to say, this increased compliance would be very onerous for many businesses, especially small ones.

Many foreign countries, as well as Treasury, have embraced this plan but congress has recently indicated that if there is to be cooperation with the U.S. under BEPS, it, rather than the Treasury, will be the active participant. The House has also stated that it may oppose several of the points under the plan. There will likely be a showdown over BEPS over the next couple of years, especially if congress wants to see Fatca endure.

SOUTH KOREA BECOMES MODEL 1 IGA

On June 10th, 2015, South Korea and the United States came to an agreement under Fatca. South Korea will be a Model 1 IGA jurisdiction, which means that its foreign financial institutions will report to the South Korean government. The latter will then conduct its own due diligence on the reported information and transmit it to the U.S. government. Model 1 IGA’s have to report information by September 30th, 2015.

EVEN THE VATICAN GOES IGA

On June 11th, 2015 the Vatican and the United States came to a pact under Fatca to form an IGA. It is likely that the Vatican will be a Model 1 IGA. As Vatican City is technically its own country, this is a big step forward for the Catholic Church and its promise to eliminate the harbors of tax evasion within its borders.