The global effort by the U.S. government to catch American tax cheats intensified this week as France, Germany, Italy, Spain and the United Kingdom have agreed to support a broad new U.S. law requiring foreign financial institutions to disclose information about the foreign bank accounts of U.S. citizens. In return, the U.S. has agreed to automatically supply information on accounts by citizens of those countries in the U.S.
“This is important. I’m surprised how much it comes up even in a practice like mine where just 10% of my clients have some assets in foreign bank accounts,” said Troy Thompson, a financial planner, former tax lawyer and the founder of Thompson Advisory in Portland, Oregon. “People are going to have legitimate concerns about this if they can’t get a bank account in England. It’s going to be hard on them.”
Critics of the Foreign Account Tax Compliance Act say it could drive foreign institutions to close accounts held by U.S. citizens rather than foot the expense of remaining in compliance with the act.
The multilateral action on the part of the European countries is intended to reduce the burden on financial institutions by removing impediments to compliance, reducing costs and simplifying the implementation of the act, according to the U.S. Treasury Department. To that end, the new international cooperation will eliminate the need for foreign financial institutions to enter into separate comprehensive agreements with the IRS regarding the act. However, each institution would still be required to register with the IRS.
It would also enable foreign financial institutions to report data directly to their own governments. The governments, in turn, would then pass the information on to the U.S. It is hoped this move will enable the institutions to stay in compliance with national privacy laws. Together the participating countries have agreed to establish systems that facilitate the automatic exchange of information about account holders.
“I think what is going to happen is other countries are going to join this,” said H. David Rosenbloom, director of the International Tax Program at the New York University School of Law. Rosenbloom used to work for the U.S. Treasury, as director of the Office of International Tax Affairs.
Domestically, Rosenbloom also said he expects there will be a renewal of vociferous opposition to the requirement that U.S. financial institutions turn over information about their European account holders to European governments.
U.S. institutions “scream bloody murder about having to turn over information on foreign account holders,” he said.
Nonetheless, the move is an indication of how the U.S. government is mustering international support for what Rosenbloom has described as being, possibly, “the widest expansion of jurisdiction by U.S. authority in American history.”
In time, Thompson said he thinks the multi-national effort could prove to be positive for all concerned.
“Broadly speaking, I think this is good for the public and good for investors if the government can address concerns about tax evasion,” he said. “I just think that in the future it will get harder, and not easier, to hide assets and if planners have not accepted that yet they need to figure out a way to live in that new world.”
Ann Marsh writes for Financial Planning.