Many nations around the world have signed tax exchange agreements with the United States. Similar to the new FATCA law, the agreements are intended to promote tax transparency and reduce tax evasion. Under the agreement, both nations will cooperate with one another and exchange tax information. These tax exchange pacts are necessary to avoid double taxation of Brazilian companies doing business in the U.S. and American companies with operations in Brazil.
Brazil’s FATCA and tax exchange agreements stalled last year after evidence surfaced that the United States was spying on Brazilian President Dilma Rousseff. The spying incident came to light after being disclosed by former defense contractor Edward Snowden.
Those revelations set off a firestorm of protests. Last September President Rousseff said, “Without the right of privacy, there is no real freedom of speech or freedom of opinion, and so there is no actual democracy. Without respect for [a nation’s] sovereignty, there is no basis for proper relations among nations.”
The spying revelations last year caused Roussef to cancel a trip to Washington and delay signing of the tax exchange pact. The FATCA agreement still has not been signed although Brazil agreed to its terms earlier this summer.
Even though President Obama has yet to formally apologize, regulators in both countries agree that FATCA and the mutual exchange pacts are in each country’s best interests. With both nations coming to terms, Brazilian and American companies avoid double taxation and tax officials in both countries have an easier time tracking tax evasion and money laundering activities that utilize offshore accounts.
Brazil is already cooperating with other developed countries to form a larger, global tax information exchange pact.
FATCA requires banks and financial institutions to review their account base and report those accounts with ties to the United States. Under FATCA, the Brazilian financial institutions will become the eyes and ears of the IRS. Once signed, the FATCA intergovernmental agreement suggests that US will provide similar information to Brazil. The tax exchange agreement allows businesses to avoid double tax and promotes cooperation between Brazilian and US regulators.
What does this mean for U.S. taxpayers with assets or accounts in Brazil? Plenty. Businesses or individuals that are already in compliance with U.S. foreign reporting requirements have little to worry. Those that aren’t in compliance because they don’t understand those laws or have intentionally used Brazilian accounts or nominee entities to hide assets are now at a much greater risk of detection. The fines and penalties associated with unreported foreign financial assets are huge.
Beginning July 1st, foreign banks are required to sort their account base and report accounts with ties to the United States. The new tax exchange agreement will allow both countries to exchange information on taxpayers engaging in cross border activities. Because the tax exchange agreement addresses double taxation, it may be beneficial for businesses that have activities in both countries.
As this post suggests, cross border tax issues and foreign bank account reporting are complex issues. Changes occur daily meaning most tax lawyers and accountants aren’t up to speed. If you do business in more than one country or have assets in a foreign account, make sure you work with your advisers concentrate in these areas.
The FATCA and FBAR lawyers at Mahany & Ertl have concentrate in offshore reporting. For a no obligation, no fee initial consultation, contact attorney Bethany Canfield at or by telephone at (414) 223-0464. All inquiries protected by the attorney client privilege.