When the U.S. introduced its Foreign Account Tax Compliance Act (FATCA) it established a precedent declaring the country would no longer tolerate tax evaders, or those who deliberately failed to comply with U.S. tax laws. While there has been much debate on both sides whether or not the U.S. Internal Revenue Service is causing more problems than it is eliminating with this implementation, recent trends have revealed that some countries that once may have been wary about sharing financial information with the agency are now establishing tax compliance regulations of their own.
Financial partnerships happening around the globe
No longer are the days when a taxpayer can place money in an account abroad and keep it silent from the IRS, or whichever country the individual is a national of. Not only are there fines in place for financial institutions that fail to comply with foreign governments, but countries are realizing that they in fact prefer this method of openness and transparency regarding global tax dollars.
It is an age when businesses are able to span the globe easily, and the IRS is not the only agency that doesn’t want to miss any of the details in these global transactions. For example the European Union and Switzerland just signed an agreed upon law which is a significant step forward in the battle against tax evasion, as noted by the European Commission in a press release.
According to the new law, which will become effective in 2018, all countries will automatically exchange information pertaining to financial accounts of one another’s residents. This will bring an end to taxpayers being able to store undeclared income in a Swiss bank account. Switzerland has long been known to house accounts that were kept silent from foreign governing bodies. With this new agreement, the Swiss government and financial institutions will provide the names, addresses, tax identification numbers, dates of birth and all other pertinent information about its accounts. This will be done on an annual basis.
“Today’s agreement heralds a new era of tax transparency and cooperation between the EU and Switzerland,” said Commissioner Pierre Moscovici, who was one of the signing parties of the agreement. “It is another blow against tax evaders, and another leap towards fairer taxation in Europe. The EU led the way on the automatic exchange of information, in the hope that our international partners would follow. This agreement is proof of what EU ambition and determination can achieve.”
Swiss compliant with US as well as EU
Switzerland has been changing its model for how it handles foreign tax compliance for some time now, and this deal with the EU is only the latest example. While FATCA certainly has played a large role in its new behaviors, the country has been willing to go along with other U.S.-created requests as well. For example, the Sierra Leone Times noted the Swiss Bank Program, which was created in August 2013, offers the country options for its banks to settle criminal activity with the U.S. government regarding tax evaders.
The program permits Swiss banks to step forward and work with the U.S. Department of Justice regarding instances of aiding U.S. taxpayers evade their tax responsibilities. While this program does not mean these banks are in the clear, as aiding in global tax evasion is a serious issue, but it does allow them to avoid possible prosecution and maintain operations, while those individuals determined to break the law will see consequences.
Most recently, four Swiss banks joined the program. The banks are Societe Generale Private Banking (Lugano-Svizzera), MediBank AG, LBBW (Schweiz) AG and Scobag Privatbank AG. These four banks will pay fines for their assistance, but help the Department of Justice in identifying past fraudulent activity by U.S. taxpayers.
“These four additional bank agreements signal a change in terrain for offshore banking,” said Richard Weber, chief of the IRS Criminal Investigation (CI) division. “No longer is it safe to hide money offshore and expect that it will not be discovered. IRS CI Special Agents will continue to follow the money to find those who circumvent the offshore disclosure laws and hold them accountable.”
According to an op-ed in Forbes, these four banks are just a small fraction of the 100-plus banks who have already signed into the program.
Indian authorities pushing Swiss banks as well
And the push on Swiss banks to comply with global financial authorities seems to be coming from all angles. According to Daily News & Analysis, the Swiss Federal Tax Administration has provided the Indian government names of Indian nationals who have Swiss bank accounts.
Like other nations, India is trying to eliminate what it calls black money. And likewise, Switzerland is complying. However, not only are the names being sent to the Indian financial overseers, but being published in the Federal Gazette and posted to the Internet. The move follows a recent action taken by the Indian Parliament that punishes those foreign banks aiding in tax evasion. It is clear that this is longer a trend, and governments are working together to eliminate a long time problem.
Tax breaks decreasing
While Switzerland has been impressing global tax bodies recently with its compliance and partnerships, it has also been implementing measures of its own. For example, Bloomberg noted the country recently held a vote to abolish a century-and-a-half old tax break that benefits wealthy foreigners. In 2014, the number of wealthy foreigners with Swiss bank accounts who received the “forfait” tax break decreased for the first time since 1999.
Account holders who take advantage of the forfait tax break don’t have to declare their assets or income. Additionally, they don’t have to pay tax on income from securities’ holdings. And while the vote didn’t pass, the action demonstrated the country’s willingness to update its tax policies to be more in line with the rest of the world.
For more information regarding global tax compliance and regulations, visit our Global Tax Solutions page.
