Newsletter | Volume 1

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Fatca gets the fat cats out of the sack

Fatca requires U.S. financial institutions to impose a 30 percent withholding tax on payments made to foreign banks if the bank does not agree to identify and provide information on U.S. account holders to the SEC.

Macavity, Macavity, there's no one like Macavity
He's a fiend in feline shape
A monster of depravity
You may meet him in a by-street
You may see him in the square
But when a crime's discovered then Macavity's not there!

The above lyrics from the musical Cats may perhaps illustrate the depravity US citizens that are classified as fat cats, with fortunes hidden from Uncle Sam currently are facing.

They are renouncing U.S. citizenship as otherwise the FATCA rules are making it harder for them to hide assets from tax authorities.

Approx. 1500 annually give up their nationality at the various U.S. embassies or elsewhere. Fatca is expected to generate $8.7 billion over ten years.

Tougher asset-disclosure rules effective as of July 1 under the Foreign Account Tax Compliance Act, or Fatca. The appeal of U.S. citizenship for expatriates faded as more than 100 Swiss banks turnover data on American clients to avoid prosecution for helping tax evaders. To avoid prosecution for handling undeclared American money, the banks must hand over account data and pay penalties.

Swiss and other banks are therefore going thru a massive amount of due diligence as they are going through to ensure they have cleaned house to avoid even larger fines or out of court settlements.

Most banks that were 'safe heavens' in the past are now forced to investigate through their records going as far back as back to the 1990s to find clients with U.S. addresses, telephone numbers, or even those clients who received schooling in the USA and databased in individual U.S.-only sections of the institution.

The U.S., is the only OECD country to tax their citizens wherever they reside. The hunt started in 2009 when UBS AG (UBSN) had to pay a $780 million penalty and handed over data on about 4,700 accounts. This buildup of the search for tax dodgers has galvanized Swiss and German banks into action. With Fatca approaching almost 9,000 Americans living overseas gave up their passports over the past five years.

Swiss Bank Accounts are not secret anymore
The US oversight authorities have threatened to cut off any bank or financial institution from easy access to the U.S. market if they didn't pass along such information.

The start of Fatca was delayed by 18 months to give foreign banks time to comply with the law, after financial institutions including Canada's Toronto-Dominion Bank (TD) and Allianz SE of Germany expressed concerns it was too complex.

Now almost all Swiss banks have entered a U.S. Justice Department program to volunteer information on how they helped clients hide money from the Internal Revenue Service, in exchange for leniency. Those banks have discovered that thousands of their clients have dual U.S.-Swiss or European citizenship, obliging them to make voluntary disclosures.

Compliance Costs of Voluntary Disclosures
Switzerland is the largest cross-border financial center with $2.3 trillion of assets.

There are exceptions as some large institutions including The Julius Baer Group Ltd. (BAER) and HSBC Holdings Plc (HSBA)'s Swiss unit, are excluded from the program. These banks are under investigation in the U.S. Credit Suisse Group AG (CSGN), the second-biggest Swiss bank. The probe fined $2.6 billion, after it pleaded guilty to aiding tax evasion.

Next newsletter. The Treasury Department will limit the benefits from corporations adopting foreign addresses to avoid taxes, a process known as an inversion. See Burger King ans Morten

Source: Business Week.