Unreported foreign accounts face penalties of 50% of the historical high balance of the account!

“If you have an unreported foreign account, time is quickly running out to comply. There are amnesty options available but only for those who act quickly. Do nothing and you could face penalties of 50% of the historical high balance of the account.”

Hong Kong Signs FATCA Pact

china-flag fatca

The U.S. Treasury Department has confirmed that Hong Kong has signed an agreement to report certain financial account information directly to the IRS. Under the 2010 FATCA law (Foreign Account Tax Compliance Act), foreign banks must review their accounts and report any accounts with ties to the United States. Banks that fail to comply are subject to high withholding taxes and may find it difficult to continue to do business in global markets.

Over 40 countries have signed formal FATCA agreements with dozens more under negotiation. Hong Kong’s agreement, however, is a bit unusual. Most countries have crafted agreements that require the financial institution to report information to that institution’s domestic tax authority, which in turn sends it to the IRS. Many foreign countries are reluctant to have banks providing information directly to the United States.

Hong Kong has elected to join Bermuda, Austria, Japan, Switzerland and Chile as the countries that will require their banks to report directly to the IRS…

Hong Kong Signs FATCA Pact

Financial repression

100 Swiss Banks Get Ultimatum: Hand Over Americans Or Face U.S. Prosecution

Since 2009, the U.S. has had unprecedented success with ferreting out offshore accounts. It started in 2008 with key court victories against UBS. In 2009, UBS paid $780 million to the IRS and upended Swiss banking forever by handing over Americans. Many other banks followed suit, and the costs keep rising. Recently, Credit Suisse plead guilty and paid a $2.6 billion fine.

Now, from its position of dominance, the Justice Department has made it clear what it wants from the hundred Swiss banks that hurriedly grabbed the DOJ’s settlement deal before January 1, 2014. The U.S. seeks ‘total cooperation’, and that truly means total. Any American names, details, and more. The Justice Department intends to get it all.

The consequences of the Swiss not complying? You guessed it: prosecution. There were 14 Swiss banks under criminal investigation that were therefore ineligible for the deal. Such Swiss banks remain under the dark cloud of a U.S. investigation, including Julius Baer, and Pictet & Cie. Approximately 100 banks took the Justice Department settlement deal before the December 31, 2013 deadline.
image But the terms of the non-prosecution agreement were not available until now, 10 months after these 100 banks signed on.There seemed to be little choice about taking the deal, given what was happening to any Swiss bank that even tried to resist. The U.S. settlement deal broke Swiss banks into several categories, with more serious penalties for the worst offenders.

A key group is the category two banks. They have reason to believe they may have committed tax offences, and they can escape prosecution by detailing their wrongdoing with U.S. clients and paying fines. The draft non-prosecution agreement does not involve guilty pleas or criminal penalties.

However, all banks must report to U.S. authorities any information or knowledge of activity relating to U.S. tax. They must reveal all cross-border activities and close the accounts of Americans evading taxes. The 3 tiers of penalties are vastly better than a full-blown U.S. investigation with potential tax evasion charges. Participating banks are required to provide details on American accounts.

They must also inform on the banks that transferred money into secret accounts or that accepted money when secret accounts were closed. See Signed Joint Statement and Program. Banks that held accounts as of August 1, 2008, must pay a fine equal to 20% of the top dollar value of all non-disclosed accounts. That goes up to 30% for secret accounts opened after August 1, 2008, but before March 2009.

The highest tier of penalties is 50% for accounts opened after that. The 3-tier penalty punishes more recent violators most harshly. Of course, American account holders also remain in the cross-hairs. The U.S. settlement program for banks should not be confused with the IRS programs for Americans seeking to avoid prosecution.

Clearly, U.S. account holders who have not already resolved their issues with the IRS should not waste any time determining which IRS offshore amnesty program is right for them. After all, disclosure is now virtually inevitable, and the banks will presumably bend over backwards to comply. If a banks fails to follow any of the terms of the agreement, it would be void. That means the bank could risk U.S. prosecution.

There is little reason to believe that the U.S. authorities are not deadly serious about this. For depositors and banks alike, disclosure and penalties are vastly better than the alternative. And depositors should beware, since closing foreign accounts is not an alternative to coming clean with the IRS. For Americans who fail to step forward, the IRS and Department of Justice warn of their vast resources.

See original source here for more links to this Forbes article.

CAPITAL CONTROLS ROLLING INTO HIGH GEAR UNDER FATCA

If you haven’t begun planning your financial assets around FATCA,
you had better start doing it yesterday.

image

The traditional banking system was already bad enough but now, with banks around the world rushing to comply with the Foreign Account Tax Compliance Act (FATCA) it is beginning to reach extreme levels. And it isn’t just affecting the most financially restricted people on Earth: US citizens… it is affecting everyone.

Take myself for example (TDV Editor-in-Chief, Jeff Berwick) I operate numerous businesses worldwide. I am a Canadian citizen as well as the citizen of a Caribbean country and our business operations are also operated out of a non-tax jurisdiction in the Caribbean. On top of that we hold no bank accounts, whatsoever, in the US… instead, we have bank accounts all over the world.

Yet, in the last two months we have had our accounts or transactions frozen, denied or questioned in different jurisdictions at least ten times. And we have had countless other problems over the last two years.

Here are just a list of the most recent:

We got FATCA’ED:
We received a FATCA notice from one of our banks in Eastern Europe. They told us that we must comply and contact them immediately. We contacted them and let them know that the company is not a US company and no US citizen is involved with the company nor the bank account. They told us that one of the phone numbers they had on file for us was a US number and therefore they’d have to close our account. We informed them that the number they had was a virtual Skype number, one of many we have, that forwarded to the property departments in our companies around the world. We are still dealing with this issue.

Constant Inquiries:
At the same Eastern European bank a few weeks ago they demanded to see detailed contracts and information on a large number of our transactions. We are still also dealing with that.

Wires Constantly Scrutinized:
At one of our bank accounts in Canada with which I have had a 20 year relationship in good standing they have blocked numerous of our recent wires and demanded to see information on who the money is going to and why. In more than one instance, when sending funds to the Middle East, we were informed that any and all wires sent to the Middle East were under heavy scrutiny causing us numerous problems.

The Paypal Monster:
Paypal has frozen many of our numerous Paypal accounts that we have worldwide on an ongoing basis. This shouldn’t come as news to any merchants who use Paypal as the company is notorious for constantly freezing funds and accounts for all manner of reasons. In one instance, as part of operations in our hotel in Acapulco (Las Torres Gemelas Private Suites) they froze our account until we could show them proof of numerous very small denomination transfers. The transactions were for room rentals that had occurred weeks or months prior and Paypal would demand that we show proof that the person had stayed with us and approved the transaction. Often these were past guests who had just booked for a few nights, who we had no other relation with, that we would have to somehow try to contact afterwards and bother them to supply Paypal with their information and approval of the transaction!

No Cuba For You:
In another instance, just a few weeks ago, another Paypal account we had was frozen after we paid for a flight from Havana, Cuba (ironically I had just stopped there for one night because I wanted to avoid the pain and risk of flying through the US) via Paypal because it was nearly impossible to purchase a flight to or from Cuba by any other means. Because we denoted the payment done was for a flight from “Havana” the account was frozen. The total dollar amount was for just a few hundred dollars.

No Brokerage For You:
Last year, a brokerage account I use in Luxembourg threatened to close my account. When I asked why they said that the brokerage had recently been bought by a Canadian brokerage and there is a Canadian law that says that no Canadian can deal with a brokerage owned by a Canadian company outside of Canada. Luckily they accepted my Caribbean residency and therefore let the account remain open. US citizens are not so lucky. The SEC has made it so hardly any brokerage outside of the US will accept US citizens effectively locking their accounts inside the US as a capital control.

http://dollarvigilante.com/blog/2014/5/28/capital-controls-rolling-into-high-gear-under-fatca.html

Surprisingly Important IRS Deadline? June 30, Here’s Why

You may think tax day is April 15. That’s the annual catharsis of filing and payment for millions of Americans. Yet these days millions of Americans file for the automatic six month extension and actually file closer to the October 15 extended deadline.

There are other tax deadlines, including the automatic 2 month extension (from April 15 to June 15). This applies to Americans outside the country on April 15. It might be tempting to plan an annual overseas jaunt right at April 15th.

imageAnd many people think Tax Day is that magical day every year when statistics show that you transition from working for the government to actually starting to work for yourself. According to the Tax Foundation, this year Tax Freedom Day 2014 was April 21, three days later than in 2013. In 2014, Americans will pay $3.0 trillion in federal taxes and $1.5 trillion in state taxes, for a total tax bill of $4.5 trillion, or 30.2 percent of income.
This year, Tax Freedom Day was April 21, 111 days into the year.

 

Here are four reasons June 30, 2014 is more important.

1. FBARS, also known as FinCEN Form 114 are due. These are annual bank account reporting forms required if you have over $10,000 in foreign accounts any time during the year. They have been in the law since 1970, but were largely ignored for years. In 2009, they emerged as key documents in the IRS battle for offshore accounts. Failing to file FBARs draws higher civil penalties and more severe criminal penalties than failing to file taxes or tax evasion. A key illustration was the case of Mr. Carl R. Zwerner, who had to pay 150% of the value of his Swiss account.

2. June 30 is also the last day to file under the 2012 OVDP, the Offshore Voluntary Disclosure Program. If you miss it, there’s also the 2014 OVDP coming into effect right on its heels July 1st. Yet the new program is somewhat more rigorous. For example, although the main offshore account penalty remains at 27.5% of the highest aggregate account balance, you have to pay it sooner. Under the 2012 OVDP, the penalty is due at the end of the case, when you sign your closing agreement. Under the 2014 OVDP, you must pay the penalty months earlier when you send in your returns. Interest wasn’t payable on that amount under the 2012 OVDP, so the delay—which could be a year or more—was nice.

3. June 30 is the big FATCA rollout. It’s the day when overseas institutions and governments start turning in American account holders. The handover comes in two ways, either to the IRS directly or to their own governments, which in turn relay the information to the US Treasury, which in turn relays it to the IRS. It’s an attenuated process, and the stakes are high. Get ready.

4. June 30 is the last day you can send off your 2012 OVDP application and have it segue into a transitional relief Streamlined submission. This one requires some explanation. June 30 is the end of the 2012 OVDP, but it’s clear the 2012 OVDP will be around for more than the next year. After all, cases in the 2012 OVDP have to work their way through the IRS system.

At the same time, the new 2014 OVDP will be in operation too. The IRS says if you are in the 2012 OVDP and want to apply for the new Streamlined program, you can. After July 1, that evidently won’t work, unless you were already in the 2012 OVDP. Put differently, if you enter the 2014 OVDP say in July, you are in the 2014 OVDP, period.

Alternatively, you could enter the Streamlined program. But if you want to have the protection of the OVDP and the chance to switch to the lower- cost Streamlined program, you need to be in the 2012 OVDP. That means acting by July 1. Plus, joining the 2012 OVDP for this purpose isn’t just a pre-clearance. It means by July 1, 2014, mailing to the IRS Criminal Investigation your voluntary disclosure letter and attachments as described in OVDP FAQ 24. Just making a request for OVDP pre-clearance before July 1, 2014 is not enough.

Why go to all this trouble? The Streamlined program offers the chance of no penalty (outside the U.S.) or a 5% penalty (inside the U.S.). That looks considerably better than 27.5%. You could just apply for Streamlined program after July 1. However, by using the 2012 OVDP and then transitional relief, you might just get the best of both worlds.

Robert W. Wood, Forbes Contributor: “I focus on taxes and litigation”

Global Tax & Compliance – FATCA: Progress Report

When Tax-News last wrote a feature on the United States Foreign Account Tax Compliance Act (FATCA) over two years ago, there were many who doubted that the US Treasury could really make this extra-territorial piece of tax legislation work.
However, as the July 1 start-date looms ever closer, FATCA is now a fact of life for financial institutions and US investors the world over, although its implementation hasn’t been without its problems. Recent FATCA developments and issues are summarised here.

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FATCA: The Legislation

Signed by President Obama in March 2010 as a revenue provision to the Hiring Incentives to Restore Employment Act, FATCA is designed to tackle the non-disclosure by US citizens of taxable income and assets held in foreign accounts. Therefore, FATCA is intended to ensure that the US obtains information on accounts held abroad at foreign financial institutions (FFIs) by US persons. Failure by an FFI to disclose information on their US clients, including account ownership, balances and amounts moving in and out of the accounts, will result in a requirement on US financial institutions to withhold 30 percent tax on US-source income.

Intergovernmental Agreements

To address situations where foreign law would prevent an FFI from complying with the terms of an FFI agreement, the United States Treasury Department has developed three model intergovernmental agreements (IGAs).

The Model 1 IGA requires FFIs in the foreign jurisdiction to report tax information about US account holders directly to its government, which will in turn relay that information to the US Internal Revenue Service (IRS).

The Model 1A IGA is essentially the same, except that the IRS will reciprocate with similar information about account holders from the signatory country with the partner government.

The Model 2 IGA requires FFIs to report specified information about their US accounts directly to the IRS, to the extent that the account holder consents or such reporting is otherwise legally permitted, and such direct reporting is supplemented by information exchange between governments with respect to non-consenting accounts. FFIs also report to the IRS aggregate information with respect to holders of pre-existing accounts who do not consent to have their account information reported, on the basis of which the IRS may make a “group request” to the partner jurisdiction for more specific information.

The IRS released the final text of the agreement to be entered into by FFIs to comply with FATCA in Revenue Procedure 2014-10 on December 26, 2013.

On April 2, 2014, the Treasury and the IRS announced that foreign jurisdictions that have reached agreement on the terms of IGAs under FATCA can be treated as having such agreements in effect until the end of 2014.This treatment will be available to jurisdictions that have reached agreements in substance prior to July 1, 2014, and that consent to having the status of their agreements disclosed. After December 31, 2014, only signed IGAs will be considered to be in effect.

As an increasing number of jurisdictions reach agreements in substance, the announcement provides FFIs located in these jurisdictions with the guidance they need prior to the upcoming registration deadlines.

As of June 12, 2014, 30 Model 1 and five Model 2 IGAs had been signed by the US Treasury. In addition, 34 Model 1 and 2 Model 2 IGAs had been reached in substance. The latest list can be viewed on the US Treasury website.

Canada

Of note was the IGA reached between the US Treasury and Canada. FATCA has raised a number of concerns in Canada – among both dual Canada-US citizens and Canadian financial institutions. One key concern was that the reporting obligations in respect of accounts in Canada would compel Canadian financial institutions to report information on account holders who are US residents and US citizens (including US citizens who are residents or citizens of Canada) directly to the IRS, thus potentially violating Canadian privacy laws.

However, under the IGA, while financial institutions in Canada will not report any information directly to the IRS, significant exemptions and relief have also been obtained. For example, certain accounts are exempt from FATCA and will not be reportable – including Registered Retirement Savings Plans, Registered Retirement Income Funds, Registered Disability Savings Plans, and Tax-Free Savings Accounts.

Kerry-Lynne D. Findlay, Minister of National Revenue, insisted that the IGA “is strictly a tax information-sharing agreement. This agreement will not impose any US taxes or penalties on US citizens or US residents holding accounts in Canada.”

The Investment Funds Institute of Canada (IFIC) released a statement on February 5, 2014 commending the federal government for the exemptions and relief it has secured on behalf of Canadian investors.

Switzerland

In June 2014, the Swiss Federal Council decided to bring the FATCA Act, together with the ordinance on disclosure obligations, into force on June 30, 2014, to ease Swiss financial institutions’ implementation of the new disclosure rules.

The Swiss parliament approved the FATCA-implementing Act in September 2013, at the same time as it approved the FATCA intergovernmental agreement between Switzerland and the US, which came into force on June 2, 2014, through an exchange of notes.

The FATCA agreement simplifies matters for Swiss financial institutions in their compliance with the US FATCA, which covers deposits held on behalf of US persons. FATCA implementation in Switzerland will be facilitated by a Model Two Intergovernmental Agreement, which requires Swiss financial institutions to disclose account details directly to the US tax authority with the consent of the US clients concerned. The US will have to request data on any recalcitrant clients through the normal administrative assistance channels.

Russia

Also of note is the part that FATCA is playing in the diplomatic tensions between the United States and Russia over the situation in Ukraine.

On April 29, 2014, the Chairman of the United States Senate Permanent Subcommittee on Investigations, Carl Levin, (D – Michigan) and its Ranking Member, John McCain (R – Arizona), wrote to Treasury Secretary Jack Lew urging the United States Administration to refrain from restarting negotiations with Russia on compliance with FATCA.

“We should not be negotiating with the Russians to help them avoid FATCA’s sanctions at a time when Russian forces are threatening and continuing to destabilize Ukraine,” they wrote.

Levin and McCain concluded that “refraining from negotiations for Russian banks to avoid the 30 percent FATCA penalty would place financial pressure upon Russia, and help reinforce diplomatic efforts to avoid military action.”

Regulations, Timetable and Compliance “Transition”

Final regulations for the implementation of FATCA were issued by the US Treasury and IRS in January 1, 2013. From August 2013, FFIs have been permitted to use an on-line portal for FATCA registration. Under current timelines, FFIs must fulfil their due diligence and withholding requirements to comply with FATCA by July 2014 (a deadline extended by six months) ready for the first reports to reach the IRS by March 31, 2015, regarding accounts maintained during 2014.

A package of proposed and temporary regulations released on February 20, 2014, makes additions and clarifications to the previously-issued FATCA regulations, and also provides guidance to coordinate FATCA rules with pre-existing due diligence, reporting, and withholding requirements under other provisions of the US tax code. The new regulations contain over fifty amendments and clarifications to the FATCA regulations issued in January 2013, “regarding ways to further reduce burdens consistent with the compliance objectives of the statute.”

Guidance and key amendments provide for: a framework to allow certain entities to provide information on US account holders directly to the IRS, rather than through a withholding agent; the treatment of certain special-purpose debt securitization vehicles; the treatment of disregarded entities as branches of FFIs; the definition of an expanded affiliated group; and transitional rules for collateral arrangements prior to 2017.

However, in May 2014, the IRS announced that calendar years 2014 and 2015 will be regarded by the agency as an enforcement and administration “transitional period” with respect to the implementation and enforcement of FATCA.

It is still intended that FATCA will go into operation on July 1 this year, but, with regard to its reporting, due diligence and withholding provisions, and so as to “facilitate an orderly transition,” the IRS will refrain from rigorously enforcing many of its requirements this year and next, as long as FFIs are making a “good-faith” effort to achieve compliance.

The Notice states that “the IRS will take into account whether a withholding agent has made reasonable efforts during the transition period to modify its account opening practices and procedures to document the status of payees,” and the IRS “will consider the good faith efforts of a participating FFI, registered deemed-compliant FFI, or limited FFI to identify and facilitate the registration of each other member of its expanded affiliated group, as required for purposes of satisfying the expanded affiliated group requirement.”

However, it was also noted that “an entity that has not made good faith efforts to comply with the new requirements will not be given any relief from IRS enforcement during the transition period.

Compliance Systems (Convey) and Baker & McKenzie (B&M) have said that the May 2 Notice (2014-33) from the United States Treasury Department should be regarded as facilitating implementation of FATCA by FFIs over the transition period, and not as a delay to its effective dates.

Commenting on the Notice’s reception, Jeff Cronin, Convey’s vice president of product strategy, said: “Many financial institutions and other FATCA-impacted organizations are under the impression that FATCA is delayed for another year. However, this is not the case. FATCA reporting obligations are still in place for this year and penalties could be assessed for organizations that are unable to demonstrate positive progress on their FATCA reporting obligations.”

Around 77,000 banks and other FFIs have already registered with the United States and received a global intermediary identification number (GIIN), to comply with FATCA, as shown in the first list published by the IRS on June 2, 2014.

FATCA Prompts US Exodus?

Describing the recent jump in renunciations of US citizenship as an exodus might be stretching it somewhat. But the marked increase in the number of US passports being handed in has undeniably coincided with a rise in tax administration burdens on US taxpayers at home and abroad and an erosion of individual privacy.

In addition to FATCA, individuals are still required to file the Report of Foreign Bank and Financial Accounts if they have a financial interest in or signature authority over financial accounts, including bank, securities, or other types of accounts, in a foreign country, and if the aggregate value of the financial accounts exceeds USD10,000 at any time during the calendar year.

According to Treasury Department statistics published in the Federal Register, 1001 United States taxpayers gave up their passports or their green cards in the first quarter of 2014, an increase of 47.4 percent over the 679 individuals that did so in the first quarter of last year. This figure was only surpassed by the 1,130 passports given up in the third quarter of 2013.

The number of people renouncing US citizenship is expected to grow to a new record level this year, above the 2,999 level in 2013.

In his International Tax Blog, Andrew Mitchel, a tax lawyer from Centerbrook, Connecticut, put the rise in expatriations down to the US ‘worldwide’ tax code, which subjects all of an individual’s earnings to US taxation.

Nevertheless, more than three-quarters of American expats and green-card holders who have taken out a supplementary overseas pension contract reported in a recent poll that they are “satisfied” to remain a US citizen despite the incoming FATCA rules.

Nigel Green, founder and chief executive of DeVere Group, said: “The Treasury Department’s figures seem to highlight a clear correlation between the increase in expatriations and growing awareness among Americans of FATCA’s highly contentious, burdensome and expensive requirements.”

“The official statistics make for depressing reading. It is our experience that Americans, quite rightly, are loath to give up their US passports – they don’t want to sever these ties, but do so as they feel there’s no viable alternative.”

He continued: “Against this backdrop of soaring US passport relinquishments, it is extremely encouraging that the overwhelming majority of those we polled who have taken out an additional overseas pension contract… told us they were ‘satisfied with the action taken and that ‘they would no longer consider giving up US citizenship.'”

US Clients Shunned

Anecdotal evidence suggests that FFIs are attempting to reduce the administrative burden associated with FATCA by simply refusing to have anything to do with US clients. In the case of Russia’s VTB this definitely appears to be the case.

With Russia unlikely to be able to conclude a FATCA IGA with the United States in the foreseeable future, and subject to the country’s current law on tax information exchange, VTB has become the first Russian bank to disclose that it is reducing its services to American clients.

While Russian FFIs (except for those that are already the subject of US sanctions) have still been able to register with the Internal Revenue Service (IRS), it is also apparent that, unless there is a change in Russian legal provisions, they will not be able to share information directly with the IRS or to withhold tax.

In that situation, it has been disclosed by VTB, Russia’s second largest banking group with around 2,000 US clients, that, while it has registered with the IRS and is ready to comply with FATCA requirements, it has also ceased to deal with new, and will gradually wind down its operations with existing, American clients.

In June 2014, the Heritage Foundation issued a report to demonstrate how the FATCA is hurting Americans living abroad, and has recommended that it should be reformed. In particular, Heritage noted that FATCA is burdening Americans living overseas with “enormous financial and legal burdens” through increased compliance costs and denials of service from foreign banks that do not want to have to deal with the law.

Heritage pointed out that “FATCA granted the Internal Revenue Service a new level of intrusiveness into the lives of Americans. … Under the legislation, the IRS is granted enhanced regulatory power in determining, based on its judgment, whether Americans with these accounts have wrongfully evaded US taxes.”

“FATCA’s costly IRS reporting requirements and its significant legal and financial risks make it unprofitable and arduous for foreign financial companies to serve Americans,” Heritage confirmed, and many FFIs have “adopted another strategy for avoiding FATCA: simply denying service to American customers. Some institutions have already closed the pre-existing accounts of their American clients, (and) lack of access to financial services has made it extremely difficult for Americans living and working abroad.”

Opposition To FATCA and Legal Issues

The winter meeting of the United States Republican Party’s National Committee (RNC) in Washington approved a resolution calling for the repeal of FATCA. It was a move applauded by the Center for Freedom and Prosperity, which has argued that “FATCA will fail to achieve its stated goal of significantly reducing tax evasion, is straining foreign relations thanks to the extralegal burdens placed on foreign financial institutions, is severely impacting law-abiding Americans living and working overseas, will harm the US economy by driving investment to more hospitable jurisdictions.”

Last year, the website, RepealFATCA.com, publicised a letter from Bill Posey (R – Florida), a member of the House of Representatives Financial Services Committee, to the Treasury Secretary Jack Lew warning that the United States Congress is extremely unlikely to approve the reciprocal tax information exchange contemplated within FATCA.

Posey’s letter reminds Lew that his department would need new statutory authority enacted by Congress to fulfill its side of the IGAs, and confirms his introduction of a bill into the House of Representatives to prevent the Treasury Secretary from expanding US bank reporting requirements with respect to interest on deposits paid to nonresident aliens.

Without this new authority, Treasury cannot deliver on the IGAs’ promises of equivalent levels of reciprocal automatic exchange, which, apart from data privacy concerns, Posey considers, in the letter, would also “impose costly compliance costs” on US financial institutions, and “discourage investment in the US.”

“It is clear,” Posey concludes in the letter, “that FATCA must be either substantially amended or repealed, and replaced with a cooperative scheme that replaces actual tax evasion without harming the innocent. … I believe a moratorium on FATCA enforcement and negotiation of additional IGAs is in order.”

A bill has already been introduced into the Senate by Rand Paul (R – Kentucky) to repeal the majority of FATCA. On introducing the bill, Paul had noted that “any law enforcement benefits have been vastly outweighed by the deleterious effects of FATCA on economic growth and the financial privacy of Americans,” and that “the implementation of FATCA has allowed the Treasury to make independent decisions with respect to the privacy of US citizens.”

However, while the Democrats continue to control the Senate, and while President Obama remains in the White House, any legislative attempts to overturn FATCA are likely to fail.

– See source link: FATCA: A Progress Report

The crucial implications of FATCA for U.S. Citizens in Hong Kong & Globally including US Air Space!

Cathay to withhold US pilots’ wages for taxes. 

Airline says new laws are forcing it to hand over 30 per cent of salaries to American authorities
Cathay Pacific Airways is to start withholding about 30 per cent of its American pilots’ salary every month and pass the money to the US tax authorities together with the pilots’ personal information this year.

“The US Internal Revenue Service is actively seeking airlines flying into the US to ensure they are fully compliant with all US income tax requirements,” Cathay said. “As an international airline flying into the US, we are working with the IRS on this compliance.”

Yip, an expert on FATCA, said that if Cathay did not comply, the US tax authorities would withhold 30 per cent of its US-source income.

http://www.scmp.com/business/companies/article/1438783/cathay-withhold-us-pilots-wages-taxes

Cathay will start withholding tax from the second quarter of the year.

Cathay will start withholding tax from the second quarter of the year.

A recently signed tax information sharing agreement between the Hong Kong and U.S. governments is an important first step towards a formal, comprehensive intergovernmental agreement (IGA) under the U.S. Foreign Account Tax Compliance Act ( FATCA), said lawyers.

FATCA requires U.S. persons, including those living overseas, to report details of their financial accounts held in other jurisdictions to U.S. tax authorities.
Additionally, foreign financial institutions (FFIs) must report the financial information of their U.S. clients to the Internal Revenue Service (IRS) or face steep penalties.
http://fatca.thomsonreuters.com/wp-content/uploads/2014/04/ASIA-Hong-Kong-U.S.-tax-information-exchange-agreement-signals-a-formal-FATCA-pact.pdf

Last July, the Hong Kong Legislative Council moved to enable Hong Kong to enter into stand-alone Tax Information Exchange Agreements and, more importantly for U.S. persons who have financial accounts there, to sign an “intergovernmental agreement” (IGA) with the U.S. for implementation of the Foreign Account Tax Compliance Act (FATCA).

fatca_hk_us_purpose

FATCA reaches U.S. citizens or residents and entities, such as a corporation or a partnership, in which a U.S. person owns more than a 10% interest.

Beyond the obvious, the reportable accounts include those held in trusts, insurance policies, retirement and stock option plans, and other related foreign structures.

The implications of FATCA, and in particular its withholding and reporting regimes, are wide-ranging for financial institutions, investment entities, and many other global organisations.

— reporting and payment of tax on worldwide income, including investment income earned on financial accounts located outside the U.S.

— disclosure of foreign accounts on tax returns and “FBAR” forms, and of foreign assets on the new Form 8938

— reporting of gifts or bequests from non-U.S. sources, and distributions from and relationships with foreign trusts, as well as interests and certain transactions with foreign corporations and partnerships.

The failure to comply with these requirements can have significant, even potentially catastrophic consequences, including potential criminal prosecution for willful violations and substantial civil money penalties.

A willful FBAR violation can result in a penalty of 50% of the balance of any unreported account(s) per year, and the IRS is increasingly aggressive about this penalty.
Even non-willful conduct can result in substantial monetary sanctions, and the assessment of tax and interest.

– See more at: http://hongkongbusiness.hk/financial-services/commentary/crucial-implications-fatca-us-citizens-in-hong-kong

Who is impacted?

Foreign financial institutions, including Hong Kong based financial institutions and Hong Kong branches of international financial institutions, are all subject to the impending FATCA regime.

Equally impacted are all residents in Hong Kong with U.S. citizenship or U.S. residency status, as the FATCA rules will require compliant financial institutions to disclose their account information to the Internal Revenue Service (IRS).
Additionally, certain non-U.S. account holders will be required to comply with requests from their financial institutions for additional documentation in order to avoid being subject to the 30 percent withholding tax.

Under FATCA, “Foreign financial institutions” (FFIs) include:

  • Banks
  • Private equity funds
  • Hedge funds
  • Institutional investment funds
  • Retirement funds & trusts
  • Insurance companies
  • Securities brokers and dealers

In essence, any non-U.S. organisation that holds, or manages customers’ money is considered an FFI subject to FATCA, irrespective of where it is headquartered or whether or not the shareholding structure is American.

What effect will FATCA have on your business?

Organisations will need to rapidly determine the potential business implications of FATCA and define their compliance strategy accordingly.

Executives should make it a priority to increase their organisation’s FATCA knowledge. 

https://www.kpmg.com/cn/en/services/tax/us-corporate-tax/foreign-account-tax-compliance-act/pages/default.aspx

Scariest Tax Form? Skip It, and IRS Can Audit Forever

Are you a U.S citizen or resident who is an officer or director of a foreign corporation ?
Do you have a company that holds a foreign bank account ?

When a U.S. shareholder holds more than 50 percent of the vote or value of a foreign corporation, the company is a controlled foreign corporation or CFC.

A U.S. shareholder is a U.S. person who owns 10 percent or more of the foreign corporation’s total voting power.

1040 form

That triggers reporting, including filing an annual IRS Form 5471. It is an understatement to say this is an important form. Failing to file it means penalties, generally $10,000 per form. A separate penalty can apply to each Form 5471 filed late, and to each Form 5471 that is incomplete or inaccurate.

What’s more, this penalty can apply even if no tax is due on the return. That seems harsh, but the next rule—about the statute of limitations—is even more surprising. If you have a CFC but fail to file a required Form 5471, your tax return remains open for audit indefinitely. Normally, the statute expires after three or six years, depending on the issue and its magnitude.

This statutory override of the normal statute of limitations is sweeping. The IRS not only has an indefinite period to examine and assess taxes on items relating to the missing Form 5471. In fact, the IRS can make any adjustments to the entire tax return with no expiration until the required Form 5471 is filed. You might think of a Form 5471 like the signature on your return. Without it, it really isn’t a return.

And don’t assume that you have no issue if there is no CFC because U.S. shareholders don’t own over 50%. In fact, Forms 5471 are not only required of U.S. shareholders in CFCs. They are also required when a U.S. shareholder acquires stock that results in 10 percent ownership in any foreign company.

The harsh statute of limitation rule for Form 5471 was the result of the HIRE Act passed March 18, 2010. Not coincidentally, this was the same law that brought us FATCA, the Foreign Account Tax Compliance Act. Bottom line: be careful with CFCs and with Form 5471. The possibility that a statute will remain open can ruin more than your day.

Whats New: Filers of Form 5471 may be subject to net investment income tax on income from CFCs controlled foreign corporations.

This problem is commonly paired with other failings, such as the filing of foreign bank account forms known as FBARs. That means the potential for large civil penalties and perhaps even criminal liability can be palpable.

This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
Forbes Article Source: http://www.forbes.com/sites/robertwood/2014/03/03/scariest-tax-form-skip-it-and-irs-can-audit-forever/