The Obama administration will soon inquire to Congress in an upcoming budget proposal to obtain heightened authority to require more disclosure about foreign clients’ accounts from United States banks, industry sources close to the situation tell Reuters. This is part of a much larger crackdown on tax evasion.
President Barack Obama’s budget plan is expected to be released in the next few weeks.
The Treasury Department initiated a fight against offshore tax evasion through the Foreign Account Tax Compliance Act (FATCA), legislation that was adopted in 2010 and is set to take into effect by the end of the year. This law permits the U.S. to withhold about 30 percent from earnings on U.S. investments by banks in a non-compliant state.
One of the main prerogatives of FATCA is to require disclosure by non-U.S. banks of information about Americans’ efforts to avoid U.S. taxes by using offshore bank accounts.
Since the Treasury has been implementing FATCA, nations such as China, France and Germany argue that because they have to order their banks to tell the IRS about Americans’ secret accounts then the U.S. government should reciprocate and hand over information pertaining to Chinese, French and German nationals. The U.S. has been sharing information with countries it has a tax treaty or a formal information-sharing agreement with.
“The United States is committed to a policy of transparency and equivalence, where appropriate, in furtherance of international cooperation to combat offshore tax evasion,” a Treasury spokesperson told the news agency.
Despite the U.S. government already forming a bilateral agreement with Denmark, Ireland, Mexico and the United Kingdom, FATCA will be fully implemented this year whether or not the bilateral pacts go through.
The U.S. is in negotiations with 50 nations, including Switzerland, the Netherlands, Canada, Japan and Italy. However, some countries have been openly dismissive of the policy. China is one of these states, but it has been speaking with American officials behind the scenes.
The Swiss Federal Data Protection and Information Commissioner (FDPIC) published a report in 2012 that highlighted the various privacy and data protection concerns.
“We are very critical of this law that has been imposed unilaterally by the United States,” the report stated.
Last month, the European Commission warned Switzerland over its tax practices and said it would be blacklisted if it did not comply over the automatic exchange of information. It even cautioned that sanctions could be imposed if it did not follow the agreement.
Financial experts and banking industry leaders argue that there are tremendous privacy concerns in relation to these efforts, especially for Mexican citizens.
“We are concerned with Latin American countries like Mexico,” said Fran Mordi, senior tax counsel at the American Bankers Association, in an interview with the news outlet. “In the past, U.S. banks didn’t report interest payments to non-resident aliens. IRS is now saying you have to report that.”
Meanwhile, the Texas Bankers Association (TBA) is mulling to start a lawsuit against the federal government to cease accountholder information sharing with Mexico, according to Eric Sandberg, the group’s president.
It is estimated that the U.S. government has lost approximately $3.09 trillion in lost revenue due to tax evasion since 2001.