President Obama took the fall for FATCA. Although expensive and somewhat missing the mark, the world is moving towards greater financial transparency and FATCA was an important first step towards that goal. Even though the full implementation of FATCA is still a couple months away, the OECD and the G20 top financial center nations are already discussing “GATCA” as a global replacement for FATCA.
FATCA and GATCA are only a first steps, however. Those efforts seek to have bank and other financial account data reported to the home country of the person opening or controlling the account. What about accounts that are owned by nominee entities? It looks like the Brits and Prime Minister David Cameron may take the lead on that front.
FATCA and GATCA are focussed on reporting accounts. The true criminals and tax evaders have long relied on so-called nominee corporations to hide their ownership – and wealth – from taxing authorities. Under FATCA, if a Swiss account is owned and controlled by a Panamanian corporation, that account probably never gets reported to the IRS even if the all the beneficial owners are Americans. Unfortunately Panama, like many other countries, doesn’t require corporations to disclose their real or beneficial owners.
Enter Prime Minister Cameron. Last year at a G8 summit (G8 are the nations of the United States, Canada, Russia, Great Britain, France, Germany, Italy and Japan), Cameron called for the member countries to support transparency of corporate ownership. Without that, FATCA and GATCA can only achieve limited success. Speaking at the summit, Prime Minister Cameron said, “We need to know who really owns and controls our companies. Not just who owns them legally, but who really benefits financially from their existence.”
That’s a tall order for Cameron to deliver even within the United Kingdom. The U.K.’s Crown Dependencies (Guernsey, Isle of Man and Jersey) and its overseas territories (Cayman Islands, Bermuda and Anguilla to name a few) are pretty entrenched in secrecy laws. That most of those places are moving towards or have accepted FATCA doesn’t mean corporate ownership transparency will be an easy next step.
One of the biggest corporate secrecy jurisdictions is the United States. Americans tend to point their fingers at other countries for being tax havens or secrecy jurisdictions but anyone here in the U.S. can go online, pay about a $100 (more or less depending on the state) and create a corporation or limited liability company and not disclose its owners.
Is corporate transparency even possible? Some say it will be a tall order. Noted offshore financial journalist David Marchant says, “International finance is so seedy that dishonesty is the norm, not the exception. What matters it the appearance of probity, not actual probity.”
Many privacy advocates, banking groups, expats and Canadians are furious with FATCA. That’s just then tip of the iceberg, however.
FATCA may be very well intentioned, it has caught tens of thousands of otherwise innocent people off guard. While there are many people who deliberately hide many from the IRS, we have found the overwhelming majority of people with unreported offshore accounts are Americans living overseas, Americans with offshore business interests, green card holders working in the U.S. but sending money “home” and dual nationals. Until all the kinks are worked out, these folks face a very real danger of getting assessed with the tremendous penalties being levied by the IRS for unreported offshore accounts.
If you have failed to report a foreign account on an FBAR form (Report of Foreign Bank and Financial Accounts), the penalty is up to the greater of $100,000 or 50% of the highest historical account balance. Fortunately, there are options and alternatives available for most taxpayers that may lower or eliminate all penalties.
We welcome questions about FATCA, FBAR and foreign reporting issues and will gladly explain your responsibilities and explore your options. Our FBAR attorneys have helped many taxpayers with a wide variety of offshore reporting problems.
For more information, contact attorney Bethany Canfield at or by telephone at (414) 223-0464. The author may also be contacted at or by telephone at (414) 704-6731 (direct). All inquiries are protected by the attorney – client privilege and kept in strict confidence. Our IRS tax services are available worldwide.
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Post by Brian Mahany, Esq.
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