FATCA Law What it Means to you (part 1)

 Recently, we have seen that a lot is happening in the international financial arena.

On the front burner of course is the USA full implementation of the FATCA law , where offshore accounts have to be reported to the US governmemt.The magic date is July 1st. It states that other countries have to report to the IRS the activities of their account holders with (possible) US tax liabilities. Non-compliance comes with a 30% penalty (actually the official term is withholding)

This new law impacts many of our clients that engage in international trade transactions.

For example, one of our clients works in the import/export business in Jakarta, and recently found out he owes $200,000 to the IRS. He was born in Indonesia. He has an Indonesian passport and worked there his whole life. He never worked in the USA and he never lived in the USA, exvept he went once on a vacation trip to Disney World for a week. That was the only time he visited the USA. Yet the IRS caught up with him. You see, his mother was born in America. Therefore he has to pay taxes in the USA (of course that includes all the penalties for not filing a tax return in the US his whole life) on the income he earned in his homeland.

Another example is a neighbour in Weston, MA who is about to go to jail, not because he did not file his taxes, but because he did not know he had to fill out that additional tax form. Had he filled out that one extra form, he would have been fine. Remember, if he had known about the form and filled it out, he would have paid the exact same amount of taxes. But because he did not, he is facing jail time. The original article can be read here 

Recently, a new law went in effect that authorized IRS agents access to Customs & Border Patrol (C&BP) databases. For those holding an American passport or green card, that is not a major issue. But if you are non-USA residents there are a number of potential complications.

You see, if a non-USA citizen spends more than 182 days in the USA , they are required too file taxes and disclosure forms in the USA. Whether you are an American citizen (or green card holder) or not, in the USA non-compliance with USA tax code is considered a criminal offence and comes with potential jail time.

Even if you get “caught”, and it turns out that you owe no taxes, you could still end up paying the penalty for not filing in the first place. So if you spend considerable time in the US on a businss visa, it might not be a bad idea to count those days.

And then there is another recent new initiative. A group of banks, which includes Bank of America Merrill Lynch, Citi, Commerzbank, JPMorgan, Societe Generale and Standard Chartered, will work together with SWIFT to build a service that will help banks manage their compliance challenges and reduce the high costs associated with implementing KYC-related (Know Your Client) regulations. SWIFT will operate the KYC Registry as an industry-wide utility with an initial focus on correspondent banking relationships. More banks are expected to join the initiative in the coming months.

Considering the lack of privacy-respect shown by the USA, when it comes to financial data, and some of the major banks in this project are USA based, the new SWIFT project poses an interesting privacy risk.

For example in 2006 ( in an attempt to fight terrorism of course) a serious theft of financial SWIFT data by the US was followed by a new agreement in 2009, in an attempt to restrict US government being able to illegally access financial information.

Then a few months ago, it appeared the new agreement was not honoured by the US , posing again serious privacy issues to financial information.

This new financial KYC-database could become quite an interesting new “target” for the government in the land of the free.

With the new complex regulations on who has to disclose certain financial activities, and how agencies can obtain information that was preciously considered private, it might not be a bad idea to sit down with your legal advisors to see if any of these new developments impact your situation.

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