US in global offshore tax evasion hunt

| 01/03/2011

(CNS): 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, says Jonathan Sambur, a former IRS attorney who now specializes in Tax Transactions in the Washington, DC office of Mayer Brown law firm. He warns 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. These institutions he notes have to take heed of the enforcement activity and consider whether they could be a target of future enforcement efforts.

It’s all part of the push for "full tax transparency", said Sambur who will be discussing the issue at next month’s OffshoreAlert conference. "Recent public statements by U.S. regulators indicate that U.S. tax avoidance and evasion is not limited to Switzerland. 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."

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,” Sambur told the online offshore watchdog OffshoreAlert.

"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 and Sambur said, “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 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."

Sambur and his colleague, Jerome Roche, will explain the problems – and solutions – facing offshore financial institutions and U.S. taxpayers during a session entitled ‘US Tax and Securities Law Issues Associated with Serving US clients’, at the 9th Annual OffshoreAlert Conference.

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