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

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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

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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, 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!

First Conviction of Non-Swiss Financial Institutions For Tax Evasion Conspiracy

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On March 9, 2016, the IRS announced the first conviction of Non-Swiss Financial Institutions for tax evasion conspiracy. At Sherayzen Law Office, we have been predicting now for years that the IRS would expand its prosecution of financial institutions far beyond the Swiss borders, specifically pointing to tax shelters such as Cayman Islands. Now that our strategic analysis has been confirmed, it is important to analyze this first conviction of Non-Swiss Financial Institutions and its impact on U.S. taxpayers with undisclosed foreign accounts.

Factual Background of the First Conviction of Non-Swiss Financial Institutions

The first conviction of Non-Swiss Financial Institutions concerned two Cayman Island Financial Institutions, Cayman National Securities Ltd. (CNS) and Cayman National Trust Co. Ltd. (CNT). CNS and CNT were Cayman Island affiliates of Cayman National Corporation, which provided investment brokerage and trust management services to individuals and entities within and outside the Cayman Islands, including citizens and residents of the United States (U.S. taxpayers).

According to the IRS and documents filed in Manhattan federal court, from at least 2001 through 2011, CNS and CNT assisted certain U.S. taxpayers in evading their U.S. tax obligations to the IRS and otherwise hiding accounts held at CNS and CNT from the IRS (hereinafter, undeclared accounts). CNS and CNT did so by knowingly opening and maintaining undeclared accounts for U.S. taxpayers at CNS and CNT. Specifically, and among other things, CNS and CNT opened and encouraged many U.S. taxpayer-clients to open accounts held in the name of sham Caymanian companies and trusts (collectively, structures), thereby helping U.S. taxpayers conceal their beneficial ownership of the accounts. Furthermore, CNS and CNT treated these sham Caymanian structures as the account holders and allowed the U.S. beneficial owners of the accounts to trade in U.S. securities without ever requiring these U.S. persons to submit Form W-9. CNS failed to disclose to the IRS the identities of the U.S. beneficial owners who were trading in U.S. securities, in contravention of CNS’s obligations under its Qualified Intermediary Agreement (QIA) with the IRS.

At their high-water mark in 2009, these two Non-Swiss Financial Institutions (CNS and CNT) had approximately $137 million in assets under management relating to undeclared accounts held by U.S. taxpayer-clients. From 2001 through 2011, CNS and CNT earned more than $3.4 million in gross revenues from the undeclared U.S. taxpayer accounts that they maintained.

In 2008, after learning about the investigation of Swiss bank UBS AG (UBS) for assisting U.S. taxpayers to evade their U.S. tax obligations, these two Non-Swiss Financial Institutions (i.e. CNS and CNT) continued to knowingly maintain undeclared accounts for U.S. taxpayer-clients and did not begin to engage in any significant remedial efforts with respect to those accounts until 2011 and 2012.

In or about June 2011, CNT hired a new president, who spearheaded a review of CNT’s files. In the course of that review, not a single file was found to be complete and without tax or other issues. Moreover, with respect to the structures that had U.S. beneficial owners, CNT’s files contained little, if any, evidence of tax compliance.

Guilty Pleas of these Two Non-Swiss Financial Institutions

On March 9, 2016, both Non-Swiss Financial Institutions, CNS and CNT pleaded guilty to a criminal Information charging them with conspiring with many of their U.S. taxpayer-clients to hide more than $130 million in offshore accounts from the IRS and to evade U.S. taxes on the income earned in those accounts. CNS and CNT entered their guilty pleas pursuant to plea agreements.

As part of their plea agreements, CNS and CNT have agreed to cooperate fully with the IRS investigation of the companies’ criminal conduct. The IRS states that, to date, CNS and CNT have already made substantial efforts to cooperate with that investigation, including by: (1) facilitating interviews of CNS and CNT employees, including top level executives; (2) voluntarily producing documents in response to the IRS requests; (3) providing, in response to a treaty request, unredacted client files for approximately 20 percent of the U.S. taxpayer-clients who maintained accounts at CNS and CNT; and (4) committing to assist in responding to a treaty request that is expected to result in the production of unredacted client files for approximately 90 to 95 percent of the U.S. taxpayer-clients who maintained accounts at CNS and CNT.

In connection with their guilty pleas, CNS and CNT have also agreed to pay the United States a total of $6 million, which consists of the forfeiture of gross proceeds of their illegal conduct, restitution of the outstanding unpaid taxes from U.S. taxpayers who held undeclared accounts at CNS and CNT, and a fine.

Impact of the Guilty Pleas of Non-Swiss Financial Institutions on U.S. Taxpayers with Undeclared Foreign Accounts

The impact of the guilty pleas of these two Cayman Island Non-Swiss Financial Institutions is difficult to overstate. First, it becomes clear that the IRS feels confident that it can replicate its success in Switzerland in every offshore jurisdiction and there is no limit to their ability to uncover undeclared foreign accounts of U.S. taxpayers.

“Today’s convictions make clear that our focus is not on any one bank, insurance company or asset management firm, or even any one country,” said Acting Deputy Assistant Attorney General Goldberg of the Justice Department’s Tax Division. “The Department and IRS are following the money across the globe – there are no safe havens for U.S. citizens engaged in tax evasion or those actively assisting them.”

Second, it is evident that the IRS strategy is to first force Non-Swiss Financial Institutions to reveal information about their U.S. clients and, then, using the information provided by these institutions, pursue noncompliant U.S. taxpayers. As part of their guilty pleas, CNS and CNT are required to turn over extensive materials about their U.S. clients and these noncompliant U.S. taxpayers should be preparing to face the full wrath of the IRS.

“The guilty pleas of these two Cayman Island companies today represent the first convictions of financial institutions outside Switzerland for conspiring with U.S. taxpayers to evade their lawful and legitimate taxes,” said U.S. Attorney Bharara. “The plea agreements require these Cayman entities to provide this office with the client files, because we are committed to finding and prosecuting not only banks that help U.S. taxpayers evade taxes, but also individual taxpayers who find criminal ways not to pay their fair share. We will follow them no matter how far they go to hide their accounts, whether it is Switzerland, the Cayman Islands, or some other tax haven.”

In essence, between FATCA and the constant IRS pressure on Non-Swiss Financial Institutions, the noncompliant U.S. taxpayers are in the constant danger of discovery, which now becomes more of a question of “when”, rather than “if”.

What Should U.S. Taxpayers With Undeclared Foreign Accounts Do?

In light of this development, U.S. taxpayers with undeclared foreign accounts in Non-Swiss Financial Institutions should explore their voluntary disclosure options as soon as possible. For this purpose, they should contact an experienced international tax law firm that specializes in this field.

Contact the Experienced International Tax Law Firm of Sherayzen Law Office, Ltd. for Professional Help With Your Undeclared Accounts

If you have undeclared foreign accounts, foreign income or foreign business entities, you are encouraged to contact the international tax law firm of Sherayzen Law Office as soon as possible. Our team of experienced tax professionals specializes in this area of law, including the preparation of all necessary legal documents and tax forms. We have helped hundreds of U.S. taxpayers around the world and we can help You!

Contact Us Today to Schedule Your Confidential Consultation!

UK FATCA Letters

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While the United Kingdom signed its FATCA implementation treaty in 2014, UK FATCA letters (i.e. FATCA letters from UK financial institutions) continue to pour into the mailboxes of U.S. taxpayers. In this article, I would like to discuss the purpose and impact of UK FATCA Letters.

UK FATCA Letters

UK FATCA Letters play an integral role in the FATCA Compliance of UK financial institutions. Under the Foreign Account Tax Compliance Act (FATCA), the UK foreign institutions are obligated to collect certain information regarding U.S. owners of UK bank and financial accounts and provide this information to the IRS. The collected information must include the name, address and social security number (or, EIN number) of U.S. accountholders.

In order to collect the required information and identify who among their clients is a US person for FATCA purposes, the UK financial institutions send UK FATCA Letters to their clients, asking them to provide the information by the required date. If there is no response within the required period of time (which may be extended), the UK financial institutions report the account to the IRS with the classification as a “recalcitrant account”.

UK FATCA Letters and Undisclosed UK Bank and Financial Accounts

While UK FATCA Letters are important to FATCA compliance of UK financial institutions, they also may have important impact on U.S. taxpayers with undisclosed bank and financial accounts in the United Kingdom, particularly on the ability of such U.S. taxpayers to timely disclose their foreign accounts.

Once a U.S. taxpayer receives UK FATCA Letters, he should be aware that the clock has started on his ability to do any type of voluntary disclosure. This is the case because UK FATCA Letters demand a response within certain limited period of time. Then, the UK financial institutions will report the account to the IRS, which may prompt IRS examination which, in turn, may deprive the taxpayer of the ability to take advantage of any type of a voluntary disclosure option.

Furthermore, UK FATCA Letters start the clock for the taxpayers to do their voluntary disclosure in an indirect way. If the taxpayers do not complete their voluntary disclosure within reasonable period of time (which may differ depending on circumstances) after they receive the letters, the IRS may proceed based on the assumption that prior noncompliance with U.S. tax requirements by the still noncompliant taxpayers was willful.

Finally, UK FATCA Letters may impact a U.S. taxpayer’s legal position with respect to current and future tax compliance, because UK FATCA Letters can be used by the IRS as evidence to prove awareness of U.S. tax requirements on the part of noncompliant U.S. taxpayers. This is particularly relevant for taxpayers who receive these letters right before the tax return and FBAR filing deadlines.

Contact Sherayzen Law Office if You Received UK FATCA Letters

If you received one or more UK FATCA Letters from foreign financial institutions, contact Sherayzen Law Office as soon as possible. Attorney Eugene Sherayzen is one of the world’s leading professionals in the area of offshore voluntary disclosures and he will personally analyze your case and create the appropriate voluntary disclosure strategy. Then, under his close supervision, his legal team will implement this strategy, including the preparation of all required tax forms.

Call Us Today to Schedule Your Confidential Consultation!

Indian FATCA Letters

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As the FATCA deadline to report Indian preexisting accounts approaches for Indian foreign financial institutions, more and more Indian-Americans and Indians who live and work in the United States receive Indian FATCA Letters (i.e. FATCA letters from Indian foreign financial institutions).

Many U.S. taxpayers of Indian origin are completely unprepared for Indian FATCA Letters and do not understand what they need to do. In this article, I would like to discuss the origin and purpose of Indian FATCA Letters as well as what you should do if you received such a letter.

Indian FATCA Letters

Indian FATCA Letters are the tools used by Indian foreign financial institutions to comply with their FATCA obligations. Since its enaction into law in 2010, the Foreign Account Tax Compliance Act (FATCA) has had a tremendous impact on global tax information exchange, forcing foreign financial institutions from more than 110 jurisdictions to comply with FATCA provisions.

One of the most prominent aspects of FATCA is the fact that it forces foreign financial institutions to report (directly or indirectly) certain information regarding U.S. owners of foreign bank and financial accounts. In essence, foreign financial institutions around the world are now forced to play the role of IRS informants, actively spying and turning over information regarding foreign financial activities of U.S. taxpayers to the IRS.

FATCA is implemented worldwide through a network of bilateral treaties. India signed such a treaty which came into force on August 31, 2015, forcing Indian foreign financial institutions to adopt FATCA-compliant procedures.

Indian FATCA Letters represent this compliance effort by Indian foreign financial institutions. In particular, Indian FATCA Letters are designed to collect various information required by FATCA, such as: the name and address of a U.S. taxpayer, the tax identification number of a U.S. taxpayer, and other information required to determine the U.S. tax status of the accountholder.

Indian FATCA Letters and Undisclosed Indian Bank and Financial Accounts

Indian FATCA Letters may have profound impact on U.S. taxpayers with undisclosed bank and financial accounts in India. First of all, Indian FATCA Letters automatically establish the awareness of U.S. tax requirements on the part of U.S. taxpayers – i.e. after receiving these letters, the taxpayers must take prudent steps to assure current and future U.S. tax compliance if they wish to avoid willful noncompliance with consequent imposition of heavy IRS penalties. This is especially important for taxpayers who receive Indian FATCA letters right before the tax return and FBAR filing deadlines.

Second, Indian FATCA Letters “start the clock” for U.S. taxpayers who wish to do a voluntary disclosure. This is done in two ways – direct and indirect.

The direct impact of Indian FATCA Letters is the FATCA requirement that foreign financial institutions report the required FATCA information to the IRS with respect to their U.S. (or suspected U.S.) accountholders within certain limited period of time. If the taxpayer refuses to answer his Indian FATCA Letters, the financial institutions will report him to the IRS as a “recalcitrant” taxpayer. This, in turn, may lead to a subsequent IRS examination which may deprive the taxpayer of the ability to take advantage of any type of a voluntary disclosure option.

The indirect impact of Indian FATCA Letters is linked to the “knowledge” issue described above – Indian FATCA Letters start the clock for the taxpayers to do their voluntary disclosure. If they do not do it within reasonable period of time (which may differ depending on circumstances), the IRS may proceed based on the assumption that prior noncompliance with U.S. tax requirements by the procrastinating taxpayers was willful.

Contact Sherayzen Law Office if You Received Indian FATCA Letters

If you received one or more Indian FATCA Letters from foreign financial institutions, contact Sherayzen Law Office as soon as possible. Our experienced legal team is led by one of the leading experts in offshore voluntary disclosures in the world – attorney Eugene Sherayzen. He will personally analyze your situation, advise you with respect to your FATCA Letter, and develop your voluntary disclosure strategy. Then, our legal team will implement this strategy, including the preparation of all required tax forms.

Call Us Today to Schedule Your Confidential Consultation!