Since the last couple of years, there has been
strong tendency towards tax transparency around the world, with the United
States (U.S.) and the G20 Countries as protagonists.
Some of the most important developments so far
are the tax information exchange agreements (TIEAs), the Foreign Account Tax
Compliance Act (FATCA), the Intergovernmental Agreements (IGAs) and the
adoption of a system for automatic exchange of information (EOI).
Under EOI systems and procedures, Tax and
Finance Authorities can obtain information through requests made to Authorities
in another country or even automatically. This will depend on the kind of
agreement that the relevant countries have entered into. The character of the
information requested will also determine the procedure to be followed by the
requesting Authority and only in those situations where it has strong belief
that its local legislation has been breached by certain tax payer.
Once the requesting Authority has submitted its
request, the providing Authority will process it in accordance to the IGA or
EOI in place. Once the information is furnished, the providing Authority will
be granted with reciprocity by receiving the same type of information from the
requesting Authority, without using banking secrecy as a reason not to provide
such information.
Besides the mechanisms where Authorities are
the main characters, countries around the world will also be relying more and
more on financial institutions (FI) in order for these to act as cross-border
tax agents. FI are, above all, required to provide certain financial
information regarding the ultimate beneficial owner (UBO) holding an account or
more with them.
As per FATCA, its worth to say that is a
mechanism impulsed by the Internal Revenue Service (IRS) of the U.S. having as
main objective gathering information of U.S. taxpayers holding foreign
accounts. This applies to U.S. passport holders or citizens with green card.
These individuals are obliged to report all their financial information to IRS,
including details regarding any offshore structure.
Since July 1st, 2014, any foreign FI
(FFI) must be registered with the IRS and report certain financial details
regarding their U.S. clients’ accounts. In case that a FFI fails to provide
such information, the IRS foresees penalties based on a 30% withholding tax on
diverse U.S. sourced payments including bank deposit and other interests,
dividends and proceeds from U.S. debt or securities.
In addition, the U.S. government has imposed
penalties for those FFI assisting individuals in tax evasion. Such are the
cases of UBS fined with $780 Million, Credit Suisse Group AG with $2.6 Billion and
the potential $9 Billion to BNP Paribas.
SLR
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