FATCA Lawyers
FATCA Lawyer Update: India Signed FATCA Agreement
/0 Comments/in FATCA Lawyers, Legal Notes /by ManagerOn July 9, 2015, India finally signed the Intergovernmental Agreement (IGA) to implement FATCA. The fact is that the Indian signed FATCA Agreement has significant implications for millions of Indian-Americans who reside in the United States as well as outside of the United States.
India Signed FATCA: Background Information on FATCA
The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 to specifically target non-compliance by U.S. taxpayers using foreign accounts. Over the past few years, this law established a new global standard for promoting tax transparency and fighting tax evasion. More than 110 jurisdictions today operate under the worldwide reach of FATCA.
Generally, FATCA is a mechanism for US authorities to obtain information regarding foreign accounts held by US persons directly form the financial institutions. In essence, FATCA effectively turns all foreign financial entities that wish to comply with the law into IRS informants. In order to force other countries to accept FATCA, the US Congress armed FATCA with a global enforcement mechanism – the law requires U.S. financial institutions to withhold a portion of certain payments made to non-compliant foreign financial institutions (FFIs).
Governments have the option of permitting their FFIs to enter into agreements directly with the IRS to comply with FATCA under U.S. Treasury Regulations or to implement FATCA by entering into one of two alternative Model IGAs with the United States. India chose the latter route.
India Signed FATCA: Model 1 Agreement
On July 9, 2015, India signed FATCA Model 1 IGA. Unlike Model 2 IGA, Model 1 IGA will require Indian FFIs (banks, mutual funds, et cetera) to report information to India’s Central Board of Direct Taxes which will then turn over this information to the IRS. It is expected that various details and information regarding US-held Indian accounts will be provided to the IRS.
India Signed FATCA: US Will Provide Information to India Regarding Indian-held US accounts
India signed FATCA Agreement not only in order to provide information regarding US-held accounts in India, but also to obtain information regarding the assets held in the United States by Indian residents (so-called “black money”). – i.e. the FATCA Agreement signed by India is also a reciprocal Agreement. This means that the United States will also provide information to India regarding Indian-held accounts and assets in the United States.
India Signed FATCA: Implementation Schedule
India singed FATCA IGA with the agreement that the implementation of the IGA will begin on October 1, 2015. The automatic exchange of information between India and the United States is scheduled to begin on September 30, 2015. The reporting period due on October 1, 2015 will be July – December 2014.
India Signed FATCA: Consequences for Indian-Americans With Undisclosed Indian Accounts
For millions of Indian-Americans who have not yet disclosed their ownership of Indian accounts and other assets, the India FATCA IGA represents a potential disaster. They are facing the draconian civil and criminal FBAR penalties, income tax penalties (with interest), PFIC taxes, and other potentially devastating consequences.
The FATCA IGA started the clock for the Indian-Americans to immediately start exploring their voluntary disclosure options. If the IRS finds out about their non-compliance first, some or potentially all voluntary disclosure options may be closed for these taxpayers.
India Signed FATCA: What Should Indian-Americans With Undisclosed Indian Accounts Do?
If you are an Indian who is a US person with undisclosed foreign accounts, contact the experienced international tax team of Sherayzen Law office for professional help. Our legal team has helped hundreds of clients around the world, including Indians. We can hep you!
So, Contact Us to Schedule Your Confidential Initial Consultation Now!
Ersparniskasse Schaffhausen AG Signs Non-Prosecution Agreement with DOJ
/0 Comments/in FATCA Lawyers, Legal Notes /by ManagerOn June 26, 2015, the US Department of Justice announced that Ersparniskasse Schaffhausen AG (Ersparniskasse Schaffhausen) signed a Non-Prosecution Agreement under the department’s Swiss Bank Program.
Ersparniskasse Schaffhausen Background
Ersparniskasse Schaffhausen was founded in 1817 and is wholly owned by a Swiss charitable foundation. It is headquartered in the city and canton of Schaffhausen, Switzerland. Ersparniskasse Schaffhausen opened, maintained and serviced accounts for U.S. persons that it knew or had reason to know were likely not declared to the Internal Revenue Service (IRS) or the U.S. Department of the Treasury as required by U.S. law.
From 2004 through 2011, Ersparniskasse Schaffhausen accepted referrals of U.S. persons as new clients from an external asset manager who, until 2009, resided in the United States and conducted some of his business through a corporation organized under the laws of the United States. The majority of the accounts that came to Ersparniskasse Schaffhausen as a result of these referrals were held in the names of non-U.S. entities that were beneficially owned by U.S. persons.
In May 2008, with the knowledge and approval of Ersparniskasse Schaffhausen management, the external asset manager and an Ersparniskasse Schaffhausen relationship manager visited five U.S. cities to meet with U.S. clients and attorneys who had the potential to refer new clients. Topics discussed during their meetings included the “crisis” involving Swiss bank UBS AG, client satisfaction with Ersparniskasse Schaffhausen, the performance of client accounts at Ersparniskasse Schaffhausen and the “asset protection” benefits of Ersparniskasse Schaffhausen.
Until 2009, Ersparniskasse Schaffhausen opened numbered accounts for U.S. persons, including code-name or pseudonym accounts, upon request. Upon opening this type of account, an Ersparniskasse Schaffhausen employee would enter the accountholder’s name in a physical register rather than in the bank’s electronic records system. This action limited the number of Ersparniskasse Schaffhausen personnel who knew the client’s identity. Holders of these accounts could also provide documents to Ersparniskasse Schaffhausen using only their code names or numbers as their authorized signatures.
Ersparniskasse Schaffhausen provided all of its clients, including U.S. persons, with the option to request that Ersparniskasse Schaffhausen retain all mail related to a client’s financial accounts in exchange for a standard service fee. Ersparniskasse Schaffhausen understood that providing such hold-mail agreements upon request could allow U.S. persons to keep evidence of their Ersparniskasse Schaffhausen accounts outside of the United States and thus assist them in concealing assets and income from the IRS.
Ersparniskasse Schaffhausen also accepted IRS Forms W-8BEN for U.S.-related accounts held in the names of non-U.S. entities, such as foreign corporations, trusts or foundations. Because Swiss law required Ersparniskasse Schaffhausen to identify the true beneficial owners of the entities on a document called a Form A, Ersparniskasse Schaffhausen knew that these accounts were beneficially owned by U.S. persons. Nonetheless, Ersparniskasse Schaffhausen accepted Forms W-8BEN that it knew falsely stated that the entities were the beneficial owners of the accounts.
Ersparniskasse Schaffhausen was aware of the 2009 IRS Offshore Voluntary Disclosure Program for U.S. persons. Despite knowing of that program and knowing or having reason to know that some of its U.S. clients had likely not declared their Ersparniskasse Schaffhausen accounts to the IRS, Ersparniskasse Schaffhausen made no effort to encourage its U.S. clients to disclose their accounts through that program.
During 2009, consultants reported to Ersparniskasse Schaffhausen, among other things, that Ersparniskasse Schaffhausen had increased risks because of its relationship with the external asset manager; that it was only a matter of time until small banks came into contact with U.S. authorities; and that there was a latent risk that previous revenues from Ersparniskasse Schaffhausen’s “U.S. strategy” could be seized or corresponding fines imposed. According to minutes of a 2009 meeting of the Ersparniskasse Schaffhausen board of directors, an Ersparniskasse Schaffhausen executive stated, among other things, that “there is practically no risk if U.S. customers travel to Switzerland and a customer account is handled locally,” and that he had been informed that Swiss bank Wegelin & Co. was going to keep its previous U.S. customers.
In October 2009, the Ersparniskasse Schaffhausen board of directors voted to continue the account relationships with clients of the external asset manager, including his U.S. clients, under certain conditions, including that his business be relocated to Switzerland. The board also voted to “have the option of entering into new cross-border business relationships.”
Swiss Bank Program Penalty and Ersparniskasse Schaffhausen’s Non-Prosecution Agreement
According to the terms of the non-prosecution agreement signed on June 26, 2015, Ersparniskasse Schaffhausen agreed to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay penalties in return for the department’s agreement not to prosecute Ersparniskasse Schaffhausen for tax-related criminal offenses.
Since August 1, 2008, Ersparniskasse Schaffhausen provided private banking services for 90 U.S.-related accounts with approximately $65 million in assets. Thirty-seven of these accounts were opened after Aug. 1, 2008. Ersparniskasse Schaffhausen will pay a penalty of $2.066 million.
In accordance with the terms of the Swiss Bank Program, Ersparniskasse Schaffhausen mitigated its penalty by encouraging U.S. accountholders to come into compliance with their U.S. tax and disclosure obligations.
Bank Sparhafen Zurich AG Reaches Resolution with DOJ
/0 Comments/in FATCA Lawyers, Legal Notes /by ManagerOn June 19, 2015, the Department of Justice announced that Bank Sparhafen Zurich AG (Bank Sparhafen) has reached resolution under the department’s Swiss Bank Program.
Bank Sparhafen Background Information
Bank Sparhafen was founded in 1850 and has its sole office in Zurich. Bank Sparhafen knew that U.S. persons had a duty under U.S. law to report their income to the Internal Revenue Service (IRS) and to pay taxes on that income, including all income earned in accounts that Bank Sparhafen maintained in Switzerland. Despite this knowledge, Bank Sparhafen opened, maintained and serviced accounts for U.S. persons that it knew or had reason to know were likely not declared to the IRS or the U.S. Treasury, as required by U.S. law.
After August 1, 2008, U.S. persons opened 32 U.S.-related accounts at Bank Sparhafen, and only one of them provided a Form W-9 to Bank Sparhafen upon opening an account. In most cases, the U.S. persons who opened accounts at Bank Sparhafen during this period had been required to close their accounts at other Swiss banks, and Bank Sparhafen knew or had reason to know that most of these accounts were likely not declared to the IRS. Moreover, 22 of the U.S.-related accounts opened during this period were funded by transfers from banks that were or are the targets of Justice Department criminal investigation.
Two relationship managers at Bank Sparhafen were responsible for managing most of its U.S.-related accounts in the period since August 1, 2008, and one of those managers directly reported to Bank Sparhafen’s chief executive officer. Bank Sparhafen relationship managers assisted U.S. persons in executing waiver forms that directed the bank not to acquire U.S. securities in their accounts. Bank Sparhafen knew that the purpose and effect of these forms was to avoid disclosing the identities of the U.S. persons to the IRS.
Until 2012, Bank Sparhafen provided its U.S. clients with an option for hold-mail agreements, even though it understood that providing these agreements upon request could allow U.S. persons to keep evidence of their accounts outside of the United States in order to conceal assets and income from the IRS. One U.S. client told his Bank Sparhafen relationship manager by email that the hold-mail fee was “cheap insurance against having my dealings with you come to the attention of the government revenue authorities.”
Bank Sparhafen also offered travel cash cards to its clients, including U.S. persons. A client could instruct Bank Sparhafen to load up to 10,000 Swiss francs, U.S. dollars or euros from his or her Bank Sparhafen bank account onto a travel cash card. The client could then use the card for purchases or remit unused balances back to the Bank Sparhafen account. U.S. persons’ use of these cards facilitated access to or use of undeclared funds on deposit at Bank Sparhafen. One Bank Sparhafen relationship manager sent a brochure about travel cash cards to a U.S. client who did not wish to transfer money to the United States because of “surveillance” concerns.
Bank Sparhafen’s Participation in the Swiss Program for Banks and DOJ Non-Prosecution Agreement
In accordance with the terms of the Swiss Bank Program, Bank Sparhafen described in detail the structure, operation and supervision of its U.S. cross-border business, including the names of relevant individuals and entities. It also encouraged existing and prior holders of U.S.-related accounts to disclose their accounts to the IRS through the Offshore Voluntary Disclosure Program.
According to the terms of the non-prosecution agreements signed on June 19, 2015, Bank Sparhafen agreed to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay penalties in return for the department’s agreement not to prosecute these banks for tax-related criminal offenses.
Since August 1, 2008, Bank Sparhafen held 91 U.S.-related accounts, with over $25 million in assets. Bank Sparhafen will pay a penalty of $1.81 million. In accordance with the terms of the Swiss Bank Program, Bank Sparhafen mitigated its penalty by encouraging U.S. accountholders to come into compliance with their U.S. tax and disclosure obligations.
Consequences for US Taxpayers with Undisclosed Accounts at Bank Sparhafen
On August 4, 2014, the IRS increased the OVDP penalty to 50 percent from 27.5 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement. This means that, starting June 19, 2015, noncompliant Bank Sparhafen’s U.S. accountholders are likely to now pay a 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.