The IRS announced today that the tax authorities in the United States, Australia, and the United Kingdom have agreed to share tax information about the use of offshore trusts and companies organized in jurisdictions such as Singapore, the British Virgin Islands, Cayman Islands and the Cook Islands. The announcement states that the U.S., Australia, and the U.K. have each acquired a “substantial amount of data” on the use of offshore trusts and companies. The data apparently includes the identities of the owners of such entities as well as advisors who helped set up the structures. It was disclosed that the IRS, the Australian Tax Office and HM Revenue & Customs “have been working together to analyze this data and have uncovered information that may be relevant to tax administrations of other jurisdictions” and that the three countries have developed a plan to share the data. IRS Acting Commissioner Steven T. Miller said that today’s announcement is “part of a wider effort by the IRS and other tax administrations to pursue international tax evasion. Our cooperative work with the United Kingdom and Australia reflects a bigger goal of leaving no safe haven for people trying to illegally evade taxes.”
At the conclusion of its announcement, the IRS offers the following warning:
There is nothing illegal about holding assets through offshore entities; however, such offshore arrangements are often used to avoid or evade tax liabilities on income represented by the principal or on the income generated by the underlying assets. In addition, advisors may be subject to civil penalties or criminal prosecution for promoting such arrangements as a means to avoid or evade tax liability or circumvent information reporting requirements.
. . .
U.S. taxpayers holding assets through offshore entities are encouraged to review their tax obligations with respect to these holdings, seek professional advice if necessary, and to participate in the IRS Offshore Voluntary Disclosure Program where appropriate. Failure to do so may result in significant penalties and possibly criminal prosecution.
The IRS Offshore Voluntary Disclosure Program is an option for U.S. taxpayers maintaining undisclosed foreign assets (including but not limited to bank accounts) and with unreported income from such foreign assets. Currently there is no deadline for participating in the OVDP, but the IRS has said it may close the program at any time. U.S. taxpayers with undisclosed offshore trusts or companies should consult with tax counsel as to whether enrolling in the OVDP is appropriate.
Today’s announcement is part of a broader effort by the United States and other countries to cooperate and share tax information. We have previously written about the Foreign Account Tax Compliance Act (FATCA) (see prior post here) which, when fully implemented, will require foreign banks to annually disclose to the IRS the names of their U.S. depositors or face a substantial withholding tax on U.S. source payments. In addition, as we discussed in a client alert, the U.S. Treasury has been busy negotiating bilateral FATCA agreements with countries around the world. In September, the U.S. and the United Kingdom announced that they had signed the first intergovernmental agreement implementing FATCA. On November 8, 2012, Treasury announced that it is engaging with more than 50 countries and jurisdictions in order to implement FATCA and improve international tax compliance. Treasury previously released model reciprocal and nonreciprocal intergovernmental agreements pursuant to which foreign financial institutions would report account information to their national governments for delivery to the U.S. On November 14, Treasury published a second model agreement pursuant to which foreign financial institutions would report information directly to Treasury. Copies of the model agreements are available here.
In its November 8 press release, Treasury stated that it is currently negotiating intergovernmental agreements with France, Germany, Italy, Spain, Japan, Switzerland, Canada, Denmark, Finland, Guernsey, Ireland, the Isle of Man, Jersey, Mexico, the Netherlands, and Norway. Treasury further stated that it was engaged in a dialogue aimed at concluding intergovernmental agreements with the following countries: Argentina, Australia, Belgium, the Cayman Islands, Cyprus, Estonia, Hungary, Israel, Korea, Liechtenstein, Malaysia, Malta, New Zealand, the Slovak Republic, Singapore, and Sweden. Finally, Treasury announced that it is exploring options for intergovernmental engagement with Bermuda, Brazil, the British Virgin Islands, Chile, the Czech Republic, Gibraltar, India, Lebanon, Luxembourg, Romania, Russia, Seychelles, Saint Maarten, Slovenia, and South Africa.
The current list of countries which have concluded FATCA agreements with the U.S. is available here.