Switzerland Starts to Come Clean
The Swiss Parliament recently approved an agreement that requires Swiss banks to cooperate with the Internal Revenue Service in enforcing tax laws. Historically, banks in countries like Switzerland, Luxembourg and Singapore have refused to divulge the identity of depositors, citing banking secrecy laws. These countries are now entering into bilateral treaties that require their domestic banks to provide depositor information, regardless of existing secrecy laws.
The IRS had been seeking depositor information from Swiss bank UBS without success. The recent agreement requires UBS to divulge the names of 4,450 depositors to the IRS.
The United States Treasury reportedly forgoes $100 billion annually in taxes due to accounts held in offshore banks. At long last, this loophole appears to be closing. Banking standards codified by the Organization for Economic Cooperation and Development require countries to exchange information for the enforcement of tax laws. These standards form the basis for several bilateral treaties between the United States and other countries.
Switzerland is not the only country that has agreed to cooperate with the IRS. In December 2008, Liechtenstein and the United States signed an agreement to allow the exchange of tax information for the purpose of enforcing U.S. tax laws. The agreement applies to information relating to the year 2009 and onwards. Gibraltar signed a similar agreement in March 2009. Luxembourg has also agreed to an amendment of its tax treaty with the United States, which allows the IRS to seek information for the 2009 tax year and later.
The effects of these treaties are already becoming apparent. Approximately 15,000 Americans took advantage of tax amnesty last year with regard to their foreign accounts. The Foreign Account Tax Compliance Act, which Congress passed this March, has provided additional incentive for offshore account holders to come clean. This legislation requires foreign banks to provide information about American account holders beginning in 2013 or submit to a 30 percent withholding on any income derived from U.S. securities.
Americans with foreign bank accounts will be subject to fines and possible criminal prosecution if their accounts are discovered by the IRS and were not previously reported. Anyone with signature authority over an account or accounts totaling at least $10,000 in foreign banks must file a Report of Foreign Bank and Financial Accounts (FBAR) with the IRS each year.