By Ken Berry
It's not related to global warming, but countries around the world continue to turn up the heat on scofflaws hiding income from offshore accounts. In the latest development, the United States, Australia, and the United Kingdom have announced a collaborative effort to share tax information from a multitude of trusts and companies holding assets on behalf of residents from far-flung places (IR-2013-48, May 9, 2013).
According to the IRS news release, each of the three nations has acquired a substantial amount of data revealing extensive use of entities organized in various jurisdictions, including Singapore, the British Virgin Islands, the Cayman Islands, and the Cook Islands. The data not only contains the identities of the individual owners of the entities, but also the advisors who assisted in establishing these structures.
The tax collection agencies – the IRS, the Australian Taxation Office, and HM Revenue & Customs, respectively – have been working together to analyze this data. They've also pinpointed information that could be relevant to tax administrations of other jurisdictions.
"This is part of a wider effort by the IRS and other tax administrations to pursue international tax evasion", said IRS Acting Commissioner Steven Miller. "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."
However, although the three countries have developed a plan for sharing the data as well as their preliminary analysis with other tax administrations, they haven't revealed any details on how the plan will actually work, according to Kevin Packman a partner with Holland & Knight, who was interviewed by AccountingWEB. Packman is a member of the firm's International Estate Planning Group and also chairs its Offshore Compliance Team. He believes the plan will operate similar to the approach used in tax treaties or the Foreign Account Tax Compliance Act (FATCA). Under FATCA, US taxpayers with specified foreign financial assets exceeding certain thresholds must report those assets to the IRS.
Packman is careful to point out that it's not illegal for US taxpayers to hold assets in foreign accounts. The collaborative effort is designed to ferret out only those individuals who, either purposely or unintentionally, fail to report income on a worldwide basis or don't meet filing requirements.
The noose is slowly tightening around tax evaders. "Effective January 1, all foreign institutions are required to provide information on US account holders", says Packman, referring to the extended reach of FATCA. "They will also examine look-through entities." He notes that the tax evaders may use various means, including insurance products, for dodging the full amount of tax they're legally obligated to pay.
"Another key aspect is whistleblowers", notes Packman. "Bradley Birkenfeld is probably the most notable. That actually started the process where we are today." Packman states that whistleblower activities have enabled the government to "collect $5 billion from thirty to forty thousand taxpayers."
Finally, Packman mentioned an international consortium that has collected a "treasure trove" of information about prominent individuals around the world. Not all the names on the list are tax evaders, he says, but the data is proving to be valuable in hunting down the cheaters.
US taxpayers holding assets in offshore entities are encouraged to review their tax obligations with respect to foreign holdings. When appropriate, they may participate in the IRS Offshore Voluntary Disclosure Program. Failure to do so may result in significant penalties and possible criminal prosecution. In any event, these taxpayers should seek professional guidance.