New anti-tax evasion law in USA

Source:  Sebastien Cornut ¸ PKF Malta

 The United States are close to lay down a new anti-tax evasion law. The Internal Revenue Service is in the lasts steps for implementing the Foreign Account Tax Compliance Act (FATCA) of 2010.

The FATCA requires individuals to report their financial accounts held overseas and foreign financial institutions to report to the Internal Revenue Service (IRS) about their American clients.

Hundreds of thousands of banks¸ insurance companies and investment funds with U.S. customers are required to register with the IRS¸ an arm of the U.S. Treasury¸ by October 25 to avoid FATCA penalties starting on January 1¸ 2014. These sanctions could be a forced closure of a bank account¸ or even a taxation of 30% of the value for an investment in the United States.

In the last few days¸ voices from financial institutions criticized this act. The 1st July¸ Bill Posey¸ member of the U.S. House of Representatives¸ has written a letter to Treasury Secretary Jack Lew questioning regulations that would require U.S. banks and credit unions to collect and report information on nonresident aliens¸ urging him to cease enforcement of the Foreign Accounting Tax Compliance Act¸ or FATCA¸ and stop negotiating intergovernmental agreements with other countries for FATCA enforcement.

At the same time¸ a big financial industry lobbying tries to secure another implementation day. The Securities Industry and Financial Markets Association (SIFMA)¸ the industry’s largest trade group¸ last month renewed its call for FATCA penalties to be delayed until 2015. The Treasury has missed FATCA deadlines before. The law’s start date was delayed once already¸ by a year¸ to January 1¸ 2014.

The law is an unprecedented effort to root out U.S. tax evasion on a global scale. It has been estimated that the U.S. Treasury loses as much as id=”mce_marker”00 billion annually to offshore tax non-compliance. The Act will actually concern all the financial institutions where U.S. citizens are established. It requires foreign financial institutions to report to the IRS information about U.S. client accounts worth more than $50¸000.

About 80 countries are in negotiations with U.S. Treasury officials about such pacts¸ known as intergovernmental agreements (IGAs). The last one is Germany¸ which¸ the 5th July¸ passed legislation to implement its IGA with the United States. As for Germany¸ some countries such as France¸ Italy¸ United Kingdom or Spain have negotiated counterparties¸ mainly financial data exchanges¸ and concluded an agreement with the United States. After long negotiations¸ Luxemburg finally signed an agreement with Washington. Some countries¸ like Belgium¸ are still discussing. Brussels sent recently a short list of financial products and accounts they want being exempted from the legislation.

But there are still important countries¸ which refuses to collaborate with this legislation¸ such as China. The deputy director general of legal affairs of the People’s Bank of China¸ the central bank of the People’s Republic of China¸ Liu Xiangmin said “China’s banking and tax la