It was a question posed to US taxpayers by the IRS in the wake of the UBS scandal: do you feel lucky?
The US offered US taxpayers the opportunity to voluntarily disclose offshore bank accounts as part of an amnesty program earlier this year. The choice? Come forward now and escape criminal prosecution or take your chances later.
It turns out that a number of US taxpayers didn’t feel quite so lucky. IRS Commish Doug Shulman has announced that more than 14,700 taxpayers came forward under the voluntary disclosure program. The disclosures were in the billions and covered accounts in 70 countries.
The number is higher than originally projected due to the numbers of taxpayers who made disclosures in the run up to the deadline. The deadline for disclosures had initially been September 23 but was extended to October 15 after input from tax professionals who were still fielding questions about the program from taxpayers.
UBS and the feds separately reached a settlement where UBS, in addition to a significant fine, agreed to release the names of over 4,500 US account holders at the bank. So far, only a handful of names has actually been released: at least two of those account holders have been sentenced to prison for their activities.
The remaining names will be disclosed over the next 10 months. Under the agreement, UBS will release the names of those account holders where there is a reasonable suspicion of “tax fraud or the like.” Generally, that includes high dollar accounts and accounts where there is a lot of movement of assets or complicated schemes. There will be procedure for appeals available in Switzerland.
ABC News is reporting that lawyers are already whining that their clients were misled by UBS about the extent of the banking secrecy. I suspect that means that lawsuits will be filed. That is, of course, how we like to solve problems in the US. It is *always* someone else’s fault, right? If the lawyers are smart, any such suits would do well to land in Switzerland and not in the US. Beyond the whole “juries likely don’t have sympathy for rich people who hide their money” issue, lawsuits based on the misdeeds of plaintiffs are not usually successful. Of course, that hasn’t stopped people from trying before…
For now, it’s a waiting game for UBS clients. The question is: do you feel lucky… now?
Who says that a little pressure doesn’t work these day? Singapore and Liechtenstein have both apparently decided that they wanted to be one of the cool kids after all. This week, both countries received word that they are slated to be removed from the dreaded gray list of the Organisation of Economic Cooperation and Development (OECD).
The gray list is a list of countries – more than 30 currently – who have made noise about increasing financial transparency but have not taken the necessary steps.
In the case of Singapore, it had publicly endorsed the transparency standard for tax purposes earlier in the year but had not signed the requisite number of financial agreements with other countries. It will hit the magic number *12* when it signs an Avoidance of Double Taxation Agreement or DTA with France this week. Singapore has also renegotiated agreements or signed new agreements with Mexico, Qatar, Norway, Austria, Australia, the Netherlands, UK, Denmark, New Zealand, Belgium and Bahrain.
Similarly, Liechtenstein has agreed two new treaties with Belgium and the Netherlands, respectively. Liechtenstein has also signed agreements with Germany, France, UK and the US. It is negotiating with Italy, Sweden and Norway.
The countries follow on the heels of Switzerland and Austria, which were removed from the grey list in September. This brings to 15 the number of countries which have been moved to the “substantially implemented” category since April 2009. The fallout from UBS is widely viewed to have contributed to the rush to be considered “mainstream.” The OECD is laughing all the way to the, er, transparent banks…
Suddenly, it’s not so fashionable to have your money in Swiss banks. That’s sooo February 2009. This season, all of the trendy tax evaders are heading somewhere else.
In the wake of increased activity by IRS to track down previously undisclosed assets (joined by the taxing authorities in countries like the UK and Germany), banks in Switzerland are reporting that the assets just aren’t pouring in like they used to. The slowdown started midyear, not coincidentally the time when the US government was exerting pressure on Switzerland to relax its banking secrecy laws.
In support of this trend, two BoA/Merrill Lynch analysts, Derek De Vries and Marc Brehm, have reported that at least one Swiss Banking Group, the Julius Baer Group, “was slightly more cautious than we expected on net new money.” In other words, Baer isn’t drawing the number of new accounts globally that they once were.
And the pendulum swings both ways. If it’s no longer attractive for Americans to do business in Switzerland, then many Swiss have countered that they will pull out of the US. Wegelin & Co., Switzerland’s oldest bank, is recommending that clients “exit from all direct investments in US securities… on the grounds of the threat of inheritance tax coupled with uncertainty as to whether one might not, one way or another, be turned into a US person.” Their gist, and I’m not making this up, is that our state of “moral and fiscal decline” means that it doesn’t make sense to invest in the US anymore.
So it’s time to panic, right? Not at all. Pulling out of investing in US-controlled securities is an interesting recommendation but not a terribly viable one. Like it or not, even in the midst of a recession, the US economy is a huge part of the global scene.
It’s kind of like how you’ll continue to see Paris Hilton in the papers. Even if you don’t like her, she adds value to an event – even if it’s just added publicity.
In other words, they don’t have to like us but I think the Swiss will still invite us to their parties.
The Tax Justice Network has recently released its list of the most secretive financial jurisdictions in the world. And who topped the list? Luxembourg? Switzerland? Hong Kong? Caymans?
Nope, it’s the United States. Yeah, of America.
But don’t get too excited with your finger pointing. It has little to do with most of the US. It’s all about Delaware (you don’t hear that very often).
The Tax Justice Network has identified what they consider “a number of key contributors to global financial secrecy on a jurisdiction-by-jurisdiction basis.” They then map that data and it’s published as the Financial Security Index (FSI).
Delaware’s status as the “incorporation haven of the USA” and its, well, *favorable* tax laws, have contributed to its ranking. The TJN noted, for example, that “the growth of private individual deposits by non-residents was most robust in the United States outranking other popular financial jurisdictions such as the Cayman Islands, United Kingdom, and Luxembourg with total non-resident deposits equalling $2.6 trillion in 2007.”
Banking crisis in the US? What banking crisis?
The TJN considered the data substantial enough to place Delaware ahead of Luxembourg (2nd), Switzerland (3rd), the Cayman Islands (4th) and the United Kingdom (5th).
Of course, anyone familiar with Delaware already knows about its favorable laws. Many of our international clients approach us about a Delaware incorporation and often, they have already been advised by their local counsel abroad to incorporate in Delaware to avoid certain state and local taxes. Of course, what they’re often not advised is that merely being incorporated in one state doesn’t offset physical presence tests in other states that might eventually drag them into other states for tax purposes. The classic example is a manufacturing company which is advised to incorporate in Delaware even though they may be, say, building a facility in New Jersey. The presence of the building in NJ will subject them to NJ state tax, irrespective of their Delaware “tax home.”
Delaware also has laws and courts which promote asset protection and dynasty trusts inside the state. I should know since I used to work for a trust company in Delaware. I reviewed and helped administer many high dollar trusts, including a number of family trusts for names that definitely rang a bell. Again, sticking a trust inside Delaware is much like incorporating inside of Delaware – you have to know what you’re doing to take advantage of the tax laws. You can’t just throw money in a trust and yell, “Ha!”
What does this mean for the US and its reputation as it attempts to foil banking secrecy laws in other jurisdictions? Absolutely nothing. Zero.
It makes for a bunch of fun headlines but I don’t think it changes the US’ standing in the world in terms of financial secrecy. Truth be told, the TJN arranges its data as it sees fit but there’s just no comparing the secrecy of incorporation records (which can be public anyway) to the strict, no holds barred secrecy of Luxembourg and Swiss banking laws. It’s just not the same thing.
I also think the TJN has a way to go in terms of making its data mean something to those outside of its network. A relatively young organization, it was formed in March 2003. According to its website, “[i]t is dedicated to high-level research, analysis and advocacy in the field of tax and regulation. We work to map, analyse and explain the role of taxation and the harmful impacts of tax evasion, tax avoidance, tax competition and tax havens.”
As a tax geek, I have to say that I enjoy the research and data. I just think you have to make it mean something beyond a sound byte.
Remember that great scene in the movie Footloose when Kevin Bacon is challenged to a game of chicken on the tractor?
It seems that the IRS is playing a little chicken of its own with taxpayers…
The IRS has entered into a settlement with UBS to divulge the names of about 4,450 account holders at the Swiss [...]
Maybe it’s summer.
Maybe it’s my grief over the UBS saga finally ending.
Or maybe I’ve just been inspired by 1LPoet to find my inner poet.
But it’s that time again. I feel some tax haiku coming on…
In honor of today’s post:
Oh Connecticut.
Your tax burden is so high.
Thank God for Jersey.
Re the UBS settlement:
It’s done, Switzerland.
No more [...]
Um, that’s all we know. Really. I’ve been sent a trillion links on this today and despite pages and pages of content, nobody has any real details.
The IRS has requested the names of more than 50,000 US taxpayers with accounts at UBS. The Swiss bank handed over about 300 names so far. [...]
Despite wide rumors that UBS might settle with the US government, there was no movement on the matter. The case, brought by the US government, focuses on the release of names of more than 50,000 US taxpayers who might have hidden assets in Switzerland for the purpose of evading tax.
This time it is the [...]
In an effort to recover income from funds that might have been hidden offshore, the US introduced a Voluntary Compliance Program that offers reduced civil penalties and no criminal penalties.
At the time, IRS Commission Doug Shulman described the program as stating:
The goal is to have a predictable set of outcomes to encourage people to come [...]
From just this morning!
Taxpayer asks:
I was going to leave a comment on your post this morning but it’s more of a question. Is it true that the Swiss do not have a military? I ask because I thought that all of these countries that losing tax money to the Swiss are the ones [...]
