It’s not vey often I give air space to the Sovereign Society — a US based organisation promoting offshore — largely because most of what they say is quite ludicrous. But I get their emailos and one I got this morning made a lot of sense for a change, so I’ll quote it at length. I’m sure they won’t mind — they’ve taken their fair share from here over the years.
Six weeks after the bill's anti-offshore provisions were introduced as the "Foreign Account Tax Compliance Act" (without hearings or any chance for opponents to be heard), the legislation that I warned you about at the time, was passed by the House.
The bill does not alter the fact that under U.S. law it is still legal to bank, invest and do business offshore. But it does add costly and cumbersome layers or new reporting requirements.
The greatest threat to offshore freedoms lies in the very real possibility that many more offshore banks and financial institutions will refuse to accept Americans as clients rather than submit to the highly unusual extension of U.S. laws to foreign financial businesses and advisors which in effect would force them to act as IRS spies.
Under this extremely punitive bill, all foreign financial institutions, banks, foreign trusts, private foundations and foreign corporations could be forced into providing information about U.S. account holders, trust grantors, and American owners associated with these legal entities. As if they did not exist, the legislation totally ignores the current extensive reporting requirements of federal law that already apply to all such entities.
As it passed the House bill, H.R. 4213:
- Impose a 30% withholding tax on payments to foreign financial institutions and other entities unless they acknowledge the existence of offshore accounts to the IRS and disclose relevant information including account ownership, balances and amounts moving in and out of the accounts.
- Require individuals and entities to report offshore accounts with values of USD50,000 or more on their tax returns.
- Extend the statute of limitations to six years when offshore accounts are unreported or misreported (the current statute of limitations on tax audits is three years).
- Require advisors who help set up offshore accounts to disclose their activities or pay a penalty.
- Require electronic filing of information reports about withholding on transfers to foreign accounts to enable the IRS to better match reports to tax returns.
- Strengthen rules and penalties with regard to foreign trusts, including rules to determine whether distributions from foreign trusts are going to U.S. beneficiaries and reporting requirements on U.S. transfers to foreign trusts.
- Clarify the definition of outgoing U.S. dividend payments that are received by foreign persons so they cannot be disguised as other types of distributions in an effort to avoid U.S. taxes.
If this bill becomes law, it may well block the ability of many Americans to bank offshore, simply because no offshore bank will put up with these unprecedented bullying tactics by the IRS. There are plenty of other people of wealth whose governments do not think they can impose their rule on the entire world.
No one will, I suspect be surprised that I warmly welcome this bill.
But note why it works: it simply prices crime out of the offshore market.
That’s good with me.
And it should be good with offshore. They say they don’t want tax evaded funds. So they should support these restrictions that make sure that crime does not pay.
And if they don’t support this bill it’s fair to ask “why not?”
Whatever the answer I think they’d better get used to this sort of thing — the domestic legislation solution to stopping offshore abuse is going to be come more and more popular.