The Tax Times: European Group Discloses The Role Of The US As A "Tax Haven" & The Implications For Europe

On February 23, 2016, we posted US The New Tax Haven? where we discussed that some international families are moving their assets out of traditional offshore jurisdictions and into trusts in certain states of the US.

We also discussed that some level of secrecy is still available in the US because Washington has not signed up to the OECD Common Reporting Standard (CRS) for international information exchange, preferring instead its own Foreign Account Tax Compliance Act (FATCA).

By resisting new Global Disclosure Standards,

the U.S. is creating a Hot New Market,

becoming the Go-To Place to

Stash Foreign Wealth.

Everyone from London lawyers to Swiss trust companies are getting in on the act, helping the world's rich move accounts from places like the Bahamas and the British Virgin Islands to Nevada, Wyoming, and South Dakota.

Some advisors discuss what type of trust can avoid both FATCA and GATCA reporting, including

GATCA reporting if the US is treated as a Participating Jurisdiction and the assets do not even have to be located in the US. Since this structure requires a US-resident trustee, the trust could also be structured to avoid US taxation.

The Economist adds that America seems not to feel bound by the global rules being crafted as a result of its own war on tax-dodging. It is also failing to tackle the anonymous shell companies often used to hide money.

The Tax Justice Network, a lobby group, calls the United States one of the world’s top three “secrecy jurisdictions”, behind Switzerland and Hong Kong. No one knows how much undeclared money is stashed offshore. Estimates range from a couple of trillion dollars to $30 trillion. What is clear is that America’s share is growing.

Now The Greens-European Free Alliance (EFA) group, a small political group in the European Parliament, has commissioned a new report The Role of the US as a Tax Haven and the Implications for Europe which also describes why the U.S. is “becoming the biggest tax haven on the planet.”

The report claims that U.S. loopholes allow anonymous companies in certain states and that the U.S. has not joined the trend to implement the multilateral automatic exchange of information under the Common Reporting Standard (CRS), but instead, has implemented the Foreign Account Tax Compliance Act (FATCA).

The report the claims that:

The U.S. is becoming one of the biggest tax havens, precisely because its legislation has loopholes when it comes to knowing who owns and control companies. The U.S. is a major financial centre but the transparency of its legal framework is not consistent with the responsibility involved in being a major financial hub.

Indeed, an investigation in 2012 found that creating an anonymous shell company is easier in the U.S. than in the rest of the world and states like Wyoming, Delaware and Nevada are among the most likely to supply untraceable shell companies to foreign clients.
Incorporation of companies in the U.S. is governed by state law and requires the filing of a corporate governance document.
- However, many states promoting the creation of corporations by non-residents do not require filing even basic ownership information.
- Arkansas, Mississippi, Colorado, Missouri, Delaware, New York, Indiana, Ohio, Iowa, Oklahoma, Maryland, Pennsylvania, Michigan, and Virginia do not require to identify either shareholders or managers.
New measures announced by President Obama last week to increase financial transparency are not ambitious enough (and will – for some – require Congress’ approval) to close the current gaps in US laws, which allow bad actors to deliberately use U.S. companies to hide money laundering, tax evasion and other illicit financial activities.

In addition to these loopholes, the U.S. hasn’t fully committed to automatic exchange of tax information with other countries, according to the new international standards developed by the Organisation for Economic Cooperation and Development (OECD).

Instead, the U.S. decided to sign a series of bilateral agreements with namely European countries but the exchange of tax information is not done through an equal partnership.
EU countries have to provide more tax information to the U.S. than this country is sending to Member States. This can create a strong incentive for those trying to hide from tax authorities to move their assets to the U.S., with less chance to be reported to EU authorities.

In 2015, the U.S. was ranked the third top jurisdiction of the Tax Justice Network's Financial Secrecy Index, which analyses the legal framework of jurisdictions in terms of banking secrecy, ownership registration of companies, trusts, foundations and partnerships, compliance with international anti-money laundering recommendations, etc.

According to the Index, the U.S. holds almost 20% of the global market share of financial services for non-residents. Foreign assets in the U.S. amounted to $16,745 billion in 2013, almost double than the U.K. (second highest). In 2014 foreign direct investment in the U.S. reached $2.900 billion with almost 60% coming from the European Union (EU) ($325 billion of these EU-originating investments corresponded to depositary institutions, finance and insurance).

The U.S. will receive the maximum scope of information from the EU and from many other countries (pursuant to IGAs), but will only send limited information to most EU countries, and no information whatsoever to Austria, Bulgaria, Switzerland and many other countries that either signed a Model 2 IGA, Model 1 B or that did not manage to sign a IGA 1 A at all (like Argentina, which did sign the MCAA).