Forget About Hiding Money Offshore!

by Sanford Millar
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On July 21, 2014 the OECD released the full version of a new global standard for the exchange of financial information in tax matters “OECD\Standard for Automatic Exchange of Financial Account Information in Tax Matters”

The new standard which will be presented for formal adoption by the OECD Members in October will establish a system of country-country information exchange agreements for the purpose of reducing tax evasion and money laundering. The systems will require enhanced due diligence programs varying in detail depending upon whether the accounts are preexisting or new and further depending on whether the account holder is an entity or an individual.

The effect of the new programs is that there is likely to be multi-jurisdictional conflicts over who has the right to tax and who has the obligation to report. Is essence who is the taxpayer and who is the taxing authority. Example: A taxpayer with dual national citizenship, such as U.S. and country X has an undeclared account in country Y a non-tax jurisdiction for non-resident accounts. Country Y will have a reporting obligation, presumably to both the U.s and Country X. The taxpayer may then face enforcement actions in both countries where he/she holds citizenship.

The planning issue for anyone with an offshore undeclared account is framed in the context of penalty avoidance or mitigation. In order to avoid near certain multi-jurisdictional fights financial institutions and taxing authorities U.S. taxpayers should consider coming forward under and make a Voluntary Disclosure or if qualified use the Streamline Procedure NOW.

If U.S. taxpayers are discovered through an information exchange agreement or other means then their conduct most certainly will be deem “willful” by the Department of Justice and the IRS. The penalties for “willful” failure to report foreign financial accounts range from the greater of $100,000 or 50% of the highest account balance per year for up to 6 years and include criminal prosecution.

The above described penalties are only the U.S. penalties for willful failure to file a Report of Foreign Financial Account (FBAR) in addition the taxpayer must pay the tax interest and tax penalties on unreported account earnings. The U.S. penalties leave open the issue of penalty proceedings in
foreign jurisdictions. The potential for legal costs, tax and penalties as a result of failure to come forward are not theoretical as the actions of the OECD demonstrate. Every member state of the OECD and most non-members can be expected to enter information agreements even between seemingly hostile nations. IT in only a matte of time and time is not on the side of the undeclared account holders.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sanford Millar, Law Offices of Sanford I. Millar | Attorney Advertising

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