by Brian Mahany
According to an article in the IFC Review, the CEO of the Hong Kong Securities and Futures Commission is lobbying against compliance with the new FATCA legislation. (FATCA is the acronym for the Foreign Account Tax Compliance Act).
Under the new FATCA law, foreign banks and financial institutions will have to determine which of their account holders have significant ties to the United States. They will also be required to disclose those account holders to the IRS.
Hong Kong’s securities chief Ashely Asher reportedly made his anti-FATCA stance widely known at a recent conference. There has been a lot of tough talk against FATCA but to date, it’s been nothing but talk. Foreign countries have until 2014 to come on board or risk sanctions by the IRS.
The United States Treasury Department has little ability to regulate foreign banks but it can make it difficult for those banks to do business here. Failing to comply can result in widespread financial consequences to both banks and taxpayers. In recent months, many other countries have jumped aboard the FATCA bandwagon.
U.S. Treasury officials say 50 nations have agreed to comply. Of course, the more countries that comply – and adopt their own FATCA style reporting regulations – the more difficult it becomes for the hold out countries. The Middle Eastern and Asian countries are among those that are holding off, at least for now. It is without surprise, then, that some in Hong Kong are calling for FATCA to be rejected.
The IRS has already delayed implementation of FATCA once. The deadlines for foreign banks to comply have been pushed out by a year until 2014. Although there is widespread opposition to the legislation, we believe that there are enough countries on board to give the feds the critical mass they need to succeed. Earlier this week Switzerland – a key “privacy jurisdiction” – agreed to comply with the new reporting requirements.
The top five world financial centers are London, New York, Hong Kong, Singapore and Zurich. With the United Kingdom, the U.S. and Switzerland now on board and Singapore in negotiations with the IRS, that leaves Hong Kong alone as a top financial center without a FATCA compliance plan. As noted above, the U.S. and other nations can’t force Hong Kong financial institutions to comply but they can make it difficult for those institutions to do business with the rest of the world.
Our prediction? Hong Kong will continue its rhetoric for a few more months and ultimately try to cut a more favorable deal with Treasury.
As we have said before, the world continues to grow smaller and more transparent. The days of hiding money or income from Uncle Sam are over. Each time I write an article like this I receive several emails from people who say I am wrong. Maybe.
The IRS won’t catch everyone but the risks are increasing daily and the penalties are severe. Willful failure to file annual FBARs (Report of Foreign Bank and Financial Accounts) is a felony punishable by 5 years in prison. And the civil fines? Some say they are worse than jail – 50% per year of the highest dollar amount of the account (the IRS will go back 8 years) or $100,000 per year per unreported account.
The tough talk from Hong Kong may offer a ray of sunshine to some but taking advantage of the current IRS offshore tax amnesty program is probably the best option. The current program – called the Offshore Voluntary Disclosure Program or “OVDI” – is pricey but avoids an audit, many of the harsh civil penalties and gives participants a “Get Out Of Jail Free” card. For those whose failure to file FBARs or report their offshore account was unintentional and for some other folks, there may be even better alternatives.
The key to avoiding prison and huge penalties is acting quickly. OVDI is not an option if the IRS finds you first or gets your name from a bank or brokerage company. The IRS operates on a first contact policy meaning you have to get to them first in order to take advantage of the amnesty programs.
The tax lawyers at Mahany & Ertl have helped many foreign born Americans, dual nationals, ex pats living overseas and green card holders avoid jail and come into compliance. We specialize in foreign reporting issues including FATCA, FBARs, OVDI and foreign gift and corporation returns. In most cases our services can be handled for a reasonable flat fee.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and coming soon, San Francisco, California. Services available worldwide.