Banks hit in US war on tax dodgers
A law now going through the US Congress would extend a crackdown on Americans evading tax overseas - by imposing financial penalties on banks which do not reveal their accounts to the taxman. Hong Kong lawyers were yesterday considering its implications.
Under the measure, foreign banks and trusts would face a 30 per cent levy on their income from US financial assets if they failed to disclose the nationality of all account holders to allow the tax authorities to establish whether any are American.
'Putting that pressure on foreign banks seems like an overly draconian measure,' said Robert Keys, a partner at PricewaterhouseCoopers (Hong Kong). It could mean foreign banks refusing to do business with Americans, he said.
If passed, the measure would take effect in 2013. The legislation says it could generate US$7.6 billion in revenue over 10 years.
The US has been scouring the globe for revenue sources as it tries to dig itself out of the worst global downturn since the second world war. It has strengthened the Internal Revenue Service (IRS), which has deployed 800 new agents for overseas assignments amid suspicions that wealthy Americans may be hoarding savings abroad. In February, Swiss bank UBS agreed to a US$780 million settlement with the US government over charges it helped rich Americans evade US taxes. Several of the UBS clients involved hid money in dummy corporations in Hong Kong.
'The IRS is looking much more closely at this part of the world,' said Joe Field, senior regional partner for Asia at the law firm Withers in Hong Kong. 'And this [latest measure] is all part of a patchwork quilt which is designed to [put] the government in a position to know a lot more about people.'
While the IRS has cracked down on wealthy Americans hiding money in offshore accounts, US expatriates have also found themselves caught in the cross hairs.
'If you are a good guy that lives in Hong Kong or Paris or the South Pole and you want to go through your daily life, you have all these terrible rules that apply to you,' Field said. 'And [the IRS] is trying to enforce them through foreign banks, and foreign banks simply say 'Why bother?''
As well as paying local taxes, the 60,000-plus Americans in Hong Kong must regularly declare their earnings to the IRS. They must also disclose the combined value of their personal overseas bank accounts, and even those for which they have signatory power, if they exceed US$10,000 at any time in a given year.
The proposal to punish banks' and trusts' failure to comply with the disclosure rule is part of a larger bill called the Tax Extenders Act of 2009.
The legislation would renew for a further year US$31.1 billion in tax breaks due to expire on December 31. They cover everything from railway maintenance to classroom supplies for primary-school teachers. Penalising the banks would recoup some of the cost of the tax breaks.
The legislation was introduced on Monday, and passed by the House of Representatives on Wednesday.
'It's moving with lightning speed,' said Timothy Burns, an associate with Withers. 'Because of the people they are targeting, there [could] be enough kickback where it could delay it until early next year, but it still looks like it's on the fast track.'
Name or shame
The US government wants to know if banks hold assets of Americans
The amount, in US dollars, penalties for non-disclosure could raise for the taxman over 10 years is an estimated: $7.6b
