With each passing month, the ability of the Internal Revenue Service to detect and punish offshore tax evasion seems to be increasing. Last month, the Department of the Treasury revealed that the U.S. government was close to reaching an agreement with Japan and Switzerland to implement the requirements of the Foreign Account Tax Compliance Act in those countries.
The announcement is significant for a number of reasons. First, the Swiss, who had long protected the secrecy of their banking industry, are opening up to outside monitoring of some clients’ offshore bank accounts. In a statement, the Swiss government acknowledged that resisting adoption of FATCA would be harmful to its banks. In fact, Switzerland intends to amend its own laws to facilitate FACTA’s operation in the country.
Second, the way in which Switzerland and Japan will have to comply with FATCA creates less of an administrative burden on countries and banks. Under the agreements, financial institutions will report directly to the IRS on U.S. taxpayers’ foreign account balances and transactions. This is in contrast with earlier agreements with other European nations, which required banks to issue reports to their own governments, who in turn relayed the information to the IRS.
Third, the simpler structure of these new agreements could galvanize other nations to create similar concords. Reports indicate that Israel, Canada, Mexico and Australia would be amenable to comparable agreements. This makes compliance with offshore account requirements all the more important for U.S taxpayers. For those who have hidden assets abroad without reporting them or paying taxes on them, the voluntary disclosure program offers taxpayers the ability to come back into compliance with applicable laws.
Source: BloombergBusinessweek, “U.S. Setting Bank Data-Sharing With Japan and Switzerland,” Richard Rubin, June 21, 2012.