Reuters is reporting that the current administration may soon ask Congress to require U.S. banks to disclose more information regarding foreign clients’ account information. The Treasury’s concentrated effort, on information-sharing, stems from the Foreign Account Tax Compliance Act (FATCA), which is set to take effect at the end of 2013.
FATCA requires foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. Under FATCA, U.S. taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS.
Since FATCA requires FFIs to disclose information about U.S taxpayers, likewise, foreign countries want to know about their own citizens assets that might be secreted away in U.S. bank accounts:
As Treasury has implemented FATCA, some countries – possibly including France, Germany and China – were said to be driving a hard bargain. They have been saying that if their banks have to tell the IRS about Americans’ secret accounts, then U.S. banks should have to reciprocate by disclosing more information about the U.S. accounts of French, German and Chinese nationals.
Treasury officials are currently negotiating bilateral information-sharing agreements with over 50 countries and have already signed pacts with the United Kingdom, Ireland, Denmark and Mexico. This has caused alarm among many U.S. bankers, given United States’ close ties to Latin America:
“We are concerned with Latin American countries like Mexico,” said Fran Mordi, senior tax counsel at the American Bankers Association. “In the past, U.S. banks didn’t report interest payments to non-resident aliens … IRS is now saying you have to report that.”
The Texas Bankers Association is considering a lawsuit against the government to stop accountholder information sharing with Mexico, said Eric Sandberg, the group’s president.
Treasury officials have said Mexico’s tax-collecting agency was carefully vetted and that officials checked with other U.S. agencies that share sensitive information with Mexico before agreeing to provide the tax information.
“The United States should be moving toward full reciprocity,” said Georgetown Law School Professor Itai Grinberg, a former Treasury official, adding it would be “deeply hypocritical” of the United States to ask for U.S. taxpayer information “without offering some kind of reciprocity.”
To read the Reuters article, click here.