Hong Kong has signed a formal FATCA agreement with the U.S. Treasury Department (announced Nov. 13, 2014). Under the agreement Hong Kong financial institutions will enter into FFI agreements with the IRS and will report information on US account holders directly to the IRS.
An FFI Agreement is an agreement in which a foreign financial institution agrees to perform due diligence on its account holders, to report periodically on its U.S. accounts to the IRS, and to withhold tax on certain deposits. A FATCA - FFI Agreement requires institutions to:
- Identify which preexisting individual account holders are already documented as U.S. persons for certain withholding or information returns (FBAR FinCen 114, 3520, 3520A, 8938) purposes.
- For individual accounts with aggregate values exceeding $1 million, an enhanced review of documents associated with the account for the previous five (5) years must be performed. Aggregate is defined as total of all accounts.
IRS Cracks Asia: Hong Kong's signing is a major turning point for the IRS. It is well known that there are significant amounts of cross border commerce and banking that goes between the US and Hong Kong. Further, Chinese traditions regarding family and wealth accumulation are well known to the IRS. In the past, many have assumed that the IRS looked the other way or individuals would not get caught. However, in the Northern District of California, the IRS has criminally prosecuted several Chinese individuals for banking and tax violations recently (2014). Further, we have a number of Chinese clients that have come forward during the past few years under the various amnesty programs that the IRS has offered (see OVDP). Whether through criminal prosecution or voluntarily coming forward, individuals have been required to disclose information regarding their banking processes, bank habits, associates and bank managers, accountants, attorneys and other advisors. This information along with the FATCA information will speed up the identification of people who have not been compliant with IRS tax reporting.
Those with unreported income or unreported foreign bank accounts are wise to seek counsel with an experienced international tax attorney. We discretely represent individuals who have not reported their taxes correctly, limiting penalties and fines, as well as, limiting the likelihood of criminal charges. Call us today English: (415) 394-7200. Mandarin/Cantonese: Henry Young at (415) 309-0026.
Related content: Finding Offshore Bank Accounts & Real Estate in China
Switzerland is working with the United States to fight tax evasion.
U.S. citizens and permanent residents are required by law to report any assets held in foreign bank accounts to the Internal Revenue Service (IRS). With the upcoming implementation of the Foreign Account Tax Compliance Act (FATCA), it will be extremely difficult for Americans to conceal funds held in other countries. In addition to FATCA, the United States has strengthened its ability to find and prosecute tax evaders by entering a new cooperative agreement with Switzerland.
In the deal, certain Swiss banks will be immune from criminal prosecution if they provide detailed information about American account holders. Once of the world's largest tax havens, Switzerland, has made a marked change in its stance on tax evasion, at least with its dealings with the United States, and a senior Justice Department official has acknowledged the country's efforts.
"If someone had an account in Switzerland, it is beyond foolish to think that that account is going to remain secret," said Kathryn Keneally, assistant attorney general in the Justice Department's tax division, in an interview with Bloomberg. "In the last five years, we've seen a remarkable change in our ability to get information concerning Swiss bank accounts. It's extraordinary. Switzerland is no longer a good place to hide assets for tax reasons."
Since 2009, the government has criminally prosecuted many U.S. taxpayers, negotiated hundreds of deals outside of court, and prosecuted banks, bankers, lawyers and advisers for tax evasion and related crimes such as false statements, tax perjury, obstruction of justice, failure to file, FBAR and Reporting violations, and other tax related crime. Initially the US targeted Switzerland in its Offshore Bank Account Initiative.
As we have previously blogged about, technology and FATCA are closing the net on individuals and entities who hold foreign bank account and assets. If you have any undeclared assets in Swiss banks or any other foreign institutions, you should seek the advice of an experienced tax attorney immediately.