Posts

Guam & American Samoa Are Non-Cooperative Tax Jurisdictions | News

On December 5, 2017, the European Union (the EU) Council published its list of the non-EU non-cooperative tax jurisdictions. The list included American Samoa and Guam unleashing strenuous objections from the United States.

Full List of Non-Cooperative Tax Jurisdictions

A total of seventeen countries made it to the list of non-cooperative tax jurisdictions: American Samoa, Bahrain, Barbados, Grenada, Guam, Korea (Republic of), Macao SAR, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad and Tobago, Tunisia and United Arab Emirates.

Criteria for Inclusion in the List of Non-Cooperative Tax Jurisdictions

The list of non-cooperative tax jurisdictions was formed out of tax jurisdictions that failed to meet three criteria at the same time: transparency, fair taxation and the implementation of anti-base-erosion and profit-shifting measures.

The EU Reasoning for Including American Samoa and Guam on the List of Non-Cooperative Tax Jurisdictions

The EU reasoning for including American Samoa and Guam on the list of non-cooperative tax jurisdictions is a peculiar one because it does not seem to care about the fact that both jurisdictions are only US territories with no authority to separately sign international tax commitments (i.e. everything is done through the United States).

In particular, the EU Council specifically criticized American Samoa and Guam for three failures. First, American Samoa and Guam did not implement the automatic information exchange of financial information. Second, both jurisdictions did not sign the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Finally, neither American Samoa nor Guam followed the EU’s BEPS minimum standards.

US Objections to the Inclusion of Its Territories on the List of Non-Cooperative Tax Jurisdictions

In his letter to the Council of the European Union, the Treasury Secretary Steven Mnuchin strenuously objected to the inclusion of American Samoa and Guam on the list of non-cooperative tax jurisdictions. The Treasury Secretary set forth the following reasons.

First, he objected to the publication of the list per se as being “duplicative” of the efforts at the G-20 and OECD level.

Second and most important, Mr. Mnuchin stated that the EU reasoning does not make sense, because American Samoa and Guam “participate in the international community through the United States”. The fact that the United States agreed to implement BEPS minimum standards and the tax transparency standards should be considered as the agreement of American Samoa and Guam to do the same. In other words, he argued that American Samoa, Guam and the Untied States should be considered as one whole legal framework.

Based on this reasoning, Mr. Mnuchin urged the EU to immediately remove American Samoa and Guam from its list of non-cooperative tax jurisdictions. It should be noted that several other jurisdictions also rejected their inclusion on the list.

Sherayzen Law Office will continue to watch for any new developments with respect to this issue.

Ukrainian FATCA Agreement Authorized for Signature

On November 9, 2016, the Ukrainian government authorized the Ukrainian FATCA Agreement for signature. Let’s explore this new development in more depth.

Ukrainian FATCA Agreement and FATCA Background

The Ukrainian FATCA Agreement is one of the many bilateral FATCA implementation agreements signed by the great majority of jurisdictions around the world. The Foreign Account Tax Compliance Act (FATCA) was enacted into law in 2010 and quickly became the new standard for international tax information exchange.

FATCA is extremely complex, but its core purpose is very clear – increased US international tax compliance (with higher revenue collection) by imposing new reporting requirements on US taxpayers and especially foreign financial institutions (FFIs). Since FFIs are not US taxpayers, the United States has been working with foreign governments to enforce FATCA through negotiation and implementation of FATCA treaties. The Ukrainian FATCA Agreement is just one more example of these bilateral treaties.

Ukrainian FATCA Agreement is a Model 1 FATCA Agreement

There are two types of FATCA treaties – Model 1 and Model 2. Model 2 FATCA treaty requires FFIs to individually enter into a FFI Agreement with the IRS to report the required FATCA information directly to the IRS (for example, Switzerland signed a Model 2 treaty).

On the other hand, Model 1 treaty requires FFIs in the “partner country” (i.e. the country that signed a Model 1 FATCA agreement) to report the required FATCA information regarding US accounts to the local tax authorities. Then, the tax authorities of the partner country share this information with the IRS.

The Ukrainian FATCA Agreement is a Model 1 FATCA Agreement.

When will the Ukrainian FATCA Agreement Enter into Force?

The Ukrainian FATCA Agreement will enter into force once Ukraine notifies the US government that it has completed all of the necessary internal procedures for the ratification of the Agreement.

What is the Impact of Ukranian FATCA Agreement on Noncompliant US Taxpayers?

The implementation of the Ukrainian FATCA Agreement will mean that the Ukrainian government will force its FFIs to identify all of the FATCA information regarding their US accountholders and share this information with US government.

This further means that any US taxpayers who are currently noncompliant with the US tax reporting requirements (such as FBAR, Form 8938, foreign income reporting, et cetera) are now at an ever increasing risk of detection by the IRS and the imposition of draconian IRS penalties.

Contact Sherayzen Law Office for Help With US Tax Compliance in light of the Ukrainian FATCA Agreement

If you have undisclosed Ukrainian assets (including Ukrainian bank accounts) and Ukrainian foreign income, you should contact Sherayzen Law Office for help as soon as possible. We have helped hundreds of US taxpayers around the globe (including Ukrainians) to bring their US tax affairs in order and we can help you!

FATCA: Increased Foreign Asset Disclosure Requirements for U.S. Persons

The Foreign Accounts Tax Compliance Act (FATCA) was enacted as part of the Hiring Incentives to Restore Employment Act of 2010 (“HIRE Act” or “Act”). In addition to specific requirements and a withholding tax, FATCA imposed a new foreign asset disclosure requirements on U.S. persons.

This article will give a general summary about FATCA disclosure requirements, penalties and its statute of limitations

Disclosure Requirements

In general, under IRC section 6038D, disclosure is required if the aggregate value of all “specified foreign financial assets” as defined in the statute, exceeds $50,000 (compare this threshold to the FBAR requirement of $10,000). This information must be attached to the current year tax returns. The provision of FATCA is effective as of tax year 2011.

Covered individuals or entities must disclose the maximum value of the asset(s) during the year, as well as other pertinent information regarding the account, stock, financial instrument, contract, interest, or related items. It should be noted that FATCA disclosure is likely to be broader than the reporting requirements under the FBAR.

Penalties

IRC section 6038D imposes a penalty of $10,000 on U.S. persons (i.e., individuals, corporations, partnerships, trusts or LLC’s) who do not meet the required disclosure requirement. If the required disclosure information is not provided within 90 days of notice and demand by the IRS, penalties will increase by $10,000 each 30 days following the notification, up to a maximum penalty of $50,000. A reasonable cause exception to the penalty may apply in certain circumstances. An international tax attorney should determine whether exception applies to your particular situation.

Furthermore, FATCA amended IRC section 6662 (substantial understatement penalty provision) to double the penalty on any underpayment attributable to an undisclosed foreign financial asset (which means any asset that should have been reported under IRC sections 6038, 6038B, 6038D, 6046A, or 6048) to a draconian 40% penalty. This provision is effective for tax years beginning after the enactment of the Act on March 18, 2010 – i.e. tax year 2011.

State of Limitations Provisions

In addition to other provisions expanding the powers of the IRS under FATCA, the Act also has an increased statute of limitations for an IRS audit. Under Section 513 of the Act, the statute of limitations is extended to six years after a return is filed when a taxpayer makes an omission of income attributable to one or more assets required to be reported under section 6038D in excess of $5,000. This is an extension of the general statute of limitations of three years from the filing of a return.

The Section 513 statute of limitations applies to returns filed after March 18, 2010. The extended statute of limitations may also apply to returns filed on or before this date if the general statute of limitation period (under IRC section 6501) has not yet expired.

Contact Sherayzen Law Office to Help You

Do you have questions relating to FATCA reporting issues, or concerns that you may be neglecting to report information that can lead to substantial penalties? Sherayzen Law Office is here to assist you with all of your U.S. tax compliance tax issues. Call now at (612) 790-7024 to discuss your tax situation with an experienced international tax lawyer.