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2018 FSI Ranks United States as Second Largest Secrecy Haven | FATCA

Paradoxically, while demanding that other countries comply with FATCA, the United States itself has become the second largest secrecy haven in the world according to the Financial Secrecy Index (“FSI”) released by the Tax Justice Network (“TJN”) at the end of January of 2018. Let’s explore why the 2018 FSI considers the United States a Tax Haven.

What is 2018 FSI?

The TJN’s FSI is considered to be one of the most comprehensive assessments of secrecy of financial centers. It is published every two years using independently verifiable data. Its methodology is based on the European Commission’s Joint Research Center. The 2018 FSI, however, is not considered to be influenced by any political considerations.

The FSI is based on various criteria which is updated with each publication. The assessment of a country’s financial secrecy includes such consideration as: requirement to identify beneficial owners of companies, trusts and foundations; whether annual registries are made available to the public in an online format; the extent to which the countries’ financial secrecy rules are forced to comply with the anti-money laundering standards, and so on.

In order to create the index, a secrecy score is combined with a figure representing the size of the offshore financial services industry in each country. This is expressed as a percentage of global exports of financial services. The responsibility for bigger transparency increases with the size of the financial services industry of a country.

In 2018, new indicators where added to what are now considered 20 Key Financial Secrecy Indicators “KFSI”. The 2018 FSI new factors ask whether a jurisdiction in question provides for public register of ownership and annual accounts of limited partnerships; public register of ownership of real estate; public register of users of freeports for the storage of high value assets; protection against prison for banking whistleblowers; harmful tax residency and citizenship rules; and other factors.

2018 FSI Placed United States as Second Largest Secrecy Haven Among the Top 10 Countries

Based on the consideration of all of these factors, including KFSI, the 2018 FSI placed United States as the second largest secrecy haven among the top ten countries. Here is the full list of top ten countries:

1. Switzerland
2. United States
3. Cayman
4. Hong Kong
5. Singapore
6. Luxembourg
7. Germany
8. Taiwan
9. UAE
10. Guernsey

What this means is that the United States is now the country that, with the exception of Switzerland, most contributes to financial secrecy in the world.

Reasons Behind the US Rise in the 2018 FSI Ranking

The second rank of the United States was assigned due to its growing share of the offshore financial services industry. According to 2018 FSI, the US market share of the offshore financial services industry is 22.3%. It was 19.6% in 2015. In fact, in order to occupy the second place in the 2018 FSI, the United States displaced such a notorious offshore haven as the Cayman Islands.

There are other objective reasons and comparative reasons for the US rise to the second place of the 2018 FSI. The main comparative reason is the European Union’s lead in the transparency initiatives. The EU is now the definite leader in combating financial secrecy.

The objective reasons are various. The United States does not have any beneficial ownership registries. It also lacks the country-by-country reporting of corporate profits (although, this may change). Finally, the United States continues to refuse to join the OECD’s Common Reporting Standard (“CRS”).

The Second Place in the 2018 FSI Points to Dubious Cost-Benefit Analysis

The second place in the 2018 FSI is not accidental. Rather, there is a cold, though morally dubious, cost-benefit calculation behind it. On the one hand, the United States was the country that really propelled the global fight against bank secrecy in the years 2008-2014. It trampled all over the vaulted Swiss Bank Secrecy laws when it came to its pursuit of US tax evaders, enacted the revolutionary FATCA legislation, forced the vast majority of foreign financial institutions to share information (including beneficial ownership information) with the IRS concerning US owners of foreign accounts, and engaged in a number of other activities to increase the worldwide financial transparency with respect to US taxpayers.

On the other hand, all of the US efforts to combat bank secrecy were not a fight for transparency ipso facto. Rather, the US government was only interested in fighting bank secrecy in so far as it concerned US taxpayers. With respect to its own bank secrecy laws concerning foreigners who wish to invest in the United States, the US government is on par and even exceeds some of the most secretive tax havens.

In other words, when it comes to fighting US tax evasion, the US government is an innovative champion. With respect to attracting investment in the United States, the same US government seems to do everything possible to turn the United States into a tax haven. This is precisely why it never joined the CRS.

While the US government seems to be acting in the name of the national self-interest, there is one huge problem that this policy creates. Currently, the elites of the most corrupt regimes, mafias and cartels of all stripes, narcotics dealers and other criminals can see the advantage of using the United States as a haven for illicit financial flows, including money laundering and funding of terrorism. There is also an increased danger that the corruption created by one part of the US financial policy may spread to other aspects of our society.

In other words, the current US bank secrecy policy seems to be in contradiction with other stated policies which attempt to specifically target the aforementioned criminal activities. This contradiction is an easy target for critics of the US financial policy and may contribute in the future to potential reversals of the current gains in international financial transparency.

Sherayzen Law Office will continue the monitor the developments in the US bank secrecy laws.

Belarus-Spain Tax Treaty Approved | FATCA Lawyer News

On December 19, 2017, the Belarusian Council of the Republic, which is the upper chamber of the Belarusian parliament, approved a law on the ratification of the pending Belarus-Spain Tax Treaty. The Belarus-Spain Tax Treaty will cover both income and capital gain taxes and is meant to prevent the double taxation of the same income in both countries. This development comes after both countries signed the Belarus-Spain Tax Treaty in Madrid, Spain, on June 14, 2017.

The exact text of the treaty is not yet known. There are reasons to believe, however, that it includes an article on the automatic exchange of tax-related information in compliance with the OECD standard. The exchange of information under the Belarus-Spain Tax Treaty is reported to be quite extensive.

The Belarus-Spain Tax Treaty will enter into force within three months after all of the ratification procedures are completed. Once in force and effective, the Belarus-Spain Tax Treaty will replace the agreement signed between the former Soviet Union and Spain on March 1, 1985.

The Belarus-Spain Tax Treaty is just the latest example of the recent rise in the number of tax treaties signed between various countries. It appears that the web of treaties between various countries is growing increasingly wider and diverse as a result of the global preference for bilateral negotiations over the multilateral ones.

Similarly, as a result of FATCA and CRS, there has been an explosion of the agreements concerning automatic exchange of certain tax-related information, including those related to foreign accounts and beneficial ownership of foreign corporations. Again, the general trend toward bilateral negotiations, led by FATCA implementation treaties (which are bilateral treaties between the United States and other countries), can be clearly observed from these developments.

This trend toward bilateral negotiations reflects the underlying complex historical processes of moving to an increasingly multipolar world. This, of course, offers little consolation to US taxpayers as well as taxpayers of other countries who are increasingly caught between the ever demanding tax compliance requirements of various countries. The recent Belarus-Spain Tax Treaty will make but a modest contribution to this burden; yet, it is definitely part of this trend.

Sherayzen Law Office will continue to observe and analyze these trends and developments, including the progress of the new Belarus-Spain Tax Treaty.

US Bank Accounts Disclosed to Israel | FATCA Tax Lawyers Florida

Many persons have assumed that FATCA is a one-way street where only the United States is able to obtain tax information with respect to foreign accounts controlled by its citizens while the information about US bank accounts is never exchanged with other FATCA signatories. While, to some (or even to a large) degree this may be true due to the fact that US financial institutions do not generally collect certain information about nonresident aliens with financial accounts in the United States, there are exceptions.

Disclosure of US Bank Accounts held by US Tax Residents Under FATCA

One of such exceptions are US taxpayers who are also citizens or tax residents of another country. Generally, the information about US bank accounts owned by US tax residents is collected by US financial institutions and shared with the IRS. Then, the IRS may share this information with other countries, including Israel.

This is a fairly important exception, because it affects millions of US citizens who reside overseas, including those who reside in Israel.

2017 Disclosures of Owners of US Bank Accounts to Israel

The most recent example of such a disclosure occurred on February 28, 2017, when the Israeli Tax Authority (“ITA”) announced that it received a second batch of information from the IRS with respect to about 30,000 US bank accounts held by Israeli citizens in the year 2014. All of this information was provided pursuant to US-Israel FATCA Agreement.

Earlier this year, in January, the US transferred the first batch of financial information under FATCA to Israel. At that time, the IRS provided information about 35,000 Israelis who had bank accounts in the United States in 2015.

Disclosure of US Bank Accounts and Other Information Will Lead to Audits of Israeli Tax Returns

The ITA also stated that the IRS will continue to supply the ITA with FATCA information regarding US Bank Accounts in the future. Israel also expects to commence the exchange of information under CRS (OECD’s Common Reporting Standard) by September of 2018.

All of the information that the ITA collects under FATCA and CRS will be used to compare with the information reported by Israelis on their Israeli tax returns. In fact, the ITA created a special tax force dedicated to screening and comparing the data. Hence, one should expect an increase in tax audits and imposition of tax penalties in Israel.

US Bank Accounts

Swiss Bank Program Data Will Be Shared with Israel, Not Just US Bank Accounts

There is one important point that should be emphasized with respect to the future IRS disclosures to Israel. Not only will the IRS share with the ITA the information regarding US bank accounts held by Israelis, but it will also supply the data about Israeli-held Swiss bank accounts that the IRS obtained through the Swiss Bank Program. The ITA already declared that it expects to receive data regarding thousands of the Swiss bank accounts held by Israelis.

This development is something that Sherayzen Law Office has frequently warned about in the past. We have repeatedly stated our concerns that the information that a foreign country obtains regarding US-held accounts through FATCA or CRS will eventually be shared with the IRS through one of the tax information exchange agreements.

The recent ITA declaration is just another confirmation of the correctness of our prediction – only it works here to benefit the ITA, not the IRS. We should expect more confirmations in the future that benefit the IRS directly with respect to detection of noncompliant US taxpayers who might have escaped the direct detection through FATCA.