Swiss Private Wealth Escapes To The Bahamas & the BVI.

The Bahamas has enjoyed an “influx” of private wealth management business due to a change in Swiss banking laws, a senior accountant warning the Bahamas that as a result, it would continue to face external pressures for greater regulation and transparency.

Michelle Thompson, managing partner at Ernst & Young (Bahamas), said We’re seeing an influx of some of that wealth to the Bahamas a result of those engagements.” Private wealth management will change as a result of FATCA and the exchange of information. “Recently, the US government, from its conversations with the Swiss government, is able to go directly to the Swiss banks and demand that that information be disclosed.  

We posted Offshore Swiss Bank Account? This May Be Your Last Chance To File A Voluntary Disclosure!  regarding that as of January 2014, The United States Justice Department has received 106 requests from Swiss entities to participate in a settlement program aimed at ending a long-running probe of tax-dodging by Americans using Swiss bank accounts according to a senior US official. 

Concurrently with this influx of Private Wealth to he Bahamas; the British Virgin Islands got more foreign direct investment last year than the major emerging economies of India and Brazil combined, a UN survey said on Tuesday January 28, 2014.  It welcomed US$92 billion of foreign cash last year, according to preliminary figures compiled by the Geneva-based UN Conference on Trade and Development (UNCTAD) think tank.That was the fourth-biggest haul of investment globally. The world’s biggest economy, the US, attracted US$159 billion.

For most countries, foreign direct investment mainly consists of companies spending on cross-border corporate acquisitions and new overseas projects. However, for the British Virgin Islands, most of the money is transferred quickly in and out of the country or cash moved through the treasury accounts of large firms, which UNCTAD terms “transnational corporations” (TNCs).

The islands’ annual inflow of foreign investment was up 40% from a year ago and continues a trend that took off after the economic crisis struck and governments began cracking down on tax avoidance.

UNCTAD investment and enterprise division director James Zhan saidthe British Virgin Islands’ boom in investment would be unlikely to continue at the same pace because regulators were determined to stop such flows.

The continued flows to the islands, which UNCTAD has previously referred to as a tax haven, is likely to keep it under the microscope of the G20 leading economies, which has said it wants to put pressure on “non-cooperative jurisdictions.”

The G20 has asked the Organisation for Economic Co-operation and Development (OECD) to lead efforts on curbing international tax evasion and avoidance, and the organization’s tax transparency forum has named the British Virgin Islands as one of five countries that failed to meet international standards on tax transparency.

Each of the five either failed to share taxpayer information with other countries or to gather information on beneficial ownership of corporate entities registered on their territory, or both.

 The OECD has said big international companies, banks and agencies may think twice about investing through these jurisdictions. It is apparent that much of this Private Wealth Exodus, will mostly  have a short stay in the Bahamas; since it has agreed to enter into a FATCA Agreement. In our post Bahamas Agrees to Enter into FATCA Agreement With the US!,  we discussed that on August 12, 2013,  the Minister of Financial Services Ryan Pinder said that the Bahamas Government has agreed that the country will achieve compliance under the United States Foreign Accounts Tax Compliance Act (FATCA) by negotiating and entering into a Model 1 Intergovernmental Agreement (IGA) with the United States Department of the Treasury.

It is also apparent that much of this  Private Wealth Exodus, will mostly  have a short stay in the BVI as well; since it has agreed to enter into a FATCA Agreement. In our post BVI to comply with US FATCA!we discussed that the leader of the British Virgin Islands says the Caribbean territory
has started talks with the US Treasury to comply with a law designed to counter offshore tax evasion.

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Sources:

Bahamas Tribune242

Taipe Times

U.S. & Italy Sign FATCA Agreement.

The U.S. and Italy have signed an intergovernmental Agreement between the Government of the United States of America and the Government of the Republic of Italy to Improve International Tax Compliance and to Implement FATCA.

The U.S. Treasury Department on January10, 2014 said it signed an anti-tax evasion pact with Italy, which became the 13th country to sign such a deal with the United States.
 
“Today's announcement is another important step forward in the fight against international tax evasion, and underscores FATCA's growing momentum and international support,” Treasury Deputy Assistant Secretary for International Tax Affairs Robert B. Stack said in a January 10, 2014 statement. 

“We welcome Italy's commitment to strengthening its cooperation with the United States in improving tax compliance,” he said.
 
U.S. and Italian officials signed the agreement, known as an IGA. IGAs, in general, allow financial institutions to report the information to their own governments, which then share the information with the IRS.

The agreement came ahead of the implementation in July of a new law to crack down on offshore tax avoidance by Americans, the Foreign Account Tax Compliance Act (FATCA).

With the Italian IGA signed, Italian banks and financial institutions will report information about eligible U.S. customers' offshore accounts to the Italian government, which will then send that information to the IRS.
 

The IGA is reciprocal, requiring the IRS to send Italy similar information about Italians with financial accounts in the United States. This arrangement has raised concerns among U.S. banks and some members of Congress.

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Source:

US Treasury 

Reurters

FATCA - IRS Says No More Delays!

The US Foreign Account Tax Compliance Act (FATCA) will definitely come into effect on 1 July this year with no possibility of further delay, according to officials of the US Internal Revenue Service (IRS).

The difficulties include negotiations with foreign governments and problems in setting up the necessary administrative systems, for example a website where foreign banks can register their compliance.
FATCA affects not only Banks but also trusts and other entities.

Rumors and media speculation of yet another postponement have circulated in the past month, after some US official bodies criticized the IRS's state of preparedness.

In a report delivered in December 2013 at the annual Public Meeting of the IRS Information Reporting Program Advisory Committee (IRPAC), the IRPAC recommended that the IRS postpone the requirement to impose FATCA withholding until January 1, 2015.

This month the USA's official National Taxpayer Advocate, Nina Olson, in her annual report to Congress, (See our post Taxpayer Advocate Delivers Annual Report to Congress...Focuses on Taxpayer Bill of Rights, OVDP and IRS Funding) "urged the IRS to introduce extra safeguards to protect US persons against the consequences of FATCA.

However, senior IRS officials have now signaled that the delays are over. This week, IRS deputy commissioner Michael Danilack told a conference in New York that there is 'absolutely no chance' of further postponements. His comment was later confirmed by an IRS spokesperson.

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Sources:

Reuters

International Advisor

Simplified Method for Estate Tax Portability Provided in Rev. Proc. 2014-18.

The Internal Revenue Service has released a revenue procedure this week allowing taxpayers who fall below the threshold for having to file an estate tax return, but who want to claim the portability exclusion, a simplified method for getting an automatic extension of time to file

Revenue Procedure 2014-18  provides an automatic extension of time for certain estates without a filing requirement to elect portability of the decedent’s unused exclusion amount for the benefit of the decedent’s surviving spouse. Those eligible must be decedents who were U.S. citizens, or residents who died after 2010 and before 2014, among other requirements. 

The relief comes in response to many requests from taxpayers who may have been unaware they needed to file the Form 706 (United States Estate (and Generation-Skipping Transfer) Tax Return) in order to claim portability, and otherwise had no filing requirement because their assets were below the $5 million mark. 

A taxpayer who meets the requirements listed below will be deemed to meet the requirements for relief under Reg. § 301.9100-3, and relief is granted under the provisions of Reg. § 301.9100-3 to extend the time to elect portability under Code Sec. 2010(c)(5)(A). For purposes of electing portability, the taxpayer's Form 706 will be considered to have been timely filed in accordance with Reg. § 20.2010-2T(a)(1). The taxpayer will receive an estate tax closing letter acknowledging receipt of the taxpayer's Form 706. 

In order to qualify for the automatic extension, the following requirements must be met:

1. The taxpayer is the executor of the estate of a decedent who:

• has a surviving spouse; 
• died after Dec. 31, 2010, and on or before Dec. 31, 2013; and 
• was a citizen or resident of the United States on the date of death.

2. The taxpayer is not required to file an estate tax return under Code Sec. 6018(a) (as determined based on the value of the gross estate and adjusted taxable gifts, without regard to Reg. § 20.2010-2T(a)(1)); 

3. The taxpayer did not file an estate tax return within the time prescribed by Reg. § 20.2010-2T(a)(1) for filing an estate tax return required to elect portability; and

4. A person permitted to make the election on behalf of a decedent, pursuant to Reg. § 20.2010-2T(a)(6), must file a complete and properly-prepared Form 706 on or before Dec. 31, 2014. 

5. The person filing the Form 706 on behalf of the decedent's estate must state at the top of the Form 706 that the return is "FILED PURSUANT TO REV. PROC. 2014-18 TO ELECT PORTABILITY UNDER Code Sec. 2010(c)(5)(A)." 

Taxpayers that are not eligible for relief under this revenue procedure may request an extension of time to make the portability election under Code Sec. 2010(c)(5)(A) by requesting a letter ruling under the provisions of Reg. § 301.9100-3. 

If, subsequent to the grant of relief pursuant to this revenue procedure, it is determined that, based on the value of the gross estate and taking into account any taxable gifts, the taxpayer was required to file an estate tax return pursuant to Code Sec. 6018(a), the grant of an extension under this revenue procedure becomes void. 

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IRS Wins Tax Shelter Penalty Case & DOJ Going Back Into Cases affected by the Decision.

The U.S. Supreme Court agreed with the Internal Revenue Service and sustained the assessment of a 40% penalty against the taxpayer who invested in a 1990s tax shelter.

The decision, U.S. v. Woods, reversed a 5^th Circuit opinion which held that the 40% penalty did not apply in sham partnership cases and declared the issue “well settled.”

 The Woods’ case got to the Supreme Court to resolve a split between two circuits that found for the taxpayers in these type of case and other circuits that found for the IRS.  The issue involves the maximum income tax penalty that can be imposed on a tax shelter investor. More specifically, this decision resolved the issue concerning whether the penalty for tax underpayments attributable to valuation misstatements applies to an underpayment resulting from a basis-inflating transaction that is subsequently disregarded for lack of economic substance.

This decision may may be an unwelcome surprise to high income taxpayers who were sold on so-called Son of Boss tax shelters by the likes of KPMG, Deutsche Bank and Ernst & Young.

The Department of Justice is going back into cases in the wake of the U.S. Supreme Court's decision in U.S. v. Woods that the 40 percent gross valuation misstatement penalty applies to overstated basis when the entire transaction is disallowed, “We've gone back into cases on both the jurisdictional issue and the penalty issue in the wake of Woods,” Kathryn Keneally, the assistant attorney general of the tax division, said. 

Justice Scalia, writing for the court in a unanimous decision, said that the district court had jurisdiction under the Tax Equity and Fiscal Responsibility Act (TEFRA) to provisionally determine the applicability of the valuation misstatement penalty at the partnership level, because the penalty resulted from an adjustment to a partnership item “even though imposing the penalty requires a subsequent, partner-level proceeding.” 

The Court stated that the plain language of the statutory provision made it applicable to a situation, whereby, the taxpayer’s basis was disallowed based upon grounds such as a lack of economic substance. The Court explained that once the taxpayers’ partnerships were deemed not to exist for tax purposes, no partner could legitimately claim a basis in their partnership interest greater than zero.
 
 

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Sources:

Forbes

U.S. v. Woods

Offshore Swiss Bank Account? This May Be Your Last Chance To File A Voluntary Disclosure!

The United States Justice Department has received 106 requests from Swiss entities to participate in a settlement program aimed at ending a long-running probe of tax-dodging by Americans using Swiss bank accounts according to a senior US official.

We first posted "Swiss Banks Agree to Plan to End Past US Tax Evasion Issues!" on August 29, 2013, where we discussed that Swiss banks were ready to pay hefty fines for sheltering United States tax fugitives under the terms of a new deal given the green light by the Swiss government.

Kathryn Keneally, a senior official of the US DOJ's tax division, said the department was 'gratified' by the response to the offer, although it does not expect that all the applicants will be granted non-prosecution. The programme is open only to banks, who will have to pay between 20 and 50 per cent of the value of undeclared US-owned accounts as at 1 August 2008.

Reports are also appearing that Credit Suisse, Switzerland's second largest bank, is close to reaching its own settlement with the US DOJ. Credit Suisse is one of the 13 banks excluded from the US DOJ amnesty because it was already being investigated when he program was announced, but it is still free to negotiate its own non-prosecution deal.

Moreover, the bank will have to disclose a great deal of information about its American clients, even including some of their names. 

Thus US taxpayers who have used a Swiss bank accounts may now want to consider applying for the US Offshore Voluntary Disclosure Program (OVDP), which sets a limit to the penalties imposed on them by the Internal Revenue Service (IRS) for failing to declare foreign assets and earnings.

However, once the Swiss banks disclosed an account holder's name to the IRS, OVDP election is no longer available to that account holder. 

Taxpayers who wish to take advantage of the OVDP must act quickly! 

The US Can Use Swiss Data for Enforcement Actions!  

The new agreement makes clear that “personal data provided by the Swiss banks… will be used and disclosed only for purposes of law enforcement (which may include regulatory action) in the United States or as otherwise permitted by US law.”

 

Have Un-Reported Income From a Swiss Bank?

Value Your Freedom?

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Marini & Associates, P.A.

  

for a FREE Tax Consultation Contact US at

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or Toll Free at 888-8TaxAid (888 882-9243888 882-9243) 

Sources:

·  Swissinfo

·  Tax Controversy Watch

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