US tax evasion law hits home

WASHINGTON: The United States Treasury has opened a new front in its war against offshore tax evasion. But for some it amounts to financial imperialism.

Americans with legitimate bank accounts outside the country and foreigners working in the US have begun receiving letters from their banks in Paris, Tokyo, Johannesburg and elsewhere, informing them that their account information is being turned over to the US tax authority.

It is the culmination of a years-long effort by the Treasury, straining to close the chronic US budget deficit, to get to unreported incomes taxable under US law that get hidden away in bank accounts around the world.

For some, the new Foreign Account Tax Compliance Act (Fatca) is an outrage: their foreign banks are now handing over their confidential information to the US government.

Under newly inked treaties with the US, some 100,000 foreign financial institutions in more than 100 countries must report to the Treasury on the accounts of any so-called “US persons” — a US citizen, or anyone with an immigrant’s “green card” or a US work permit.

“That’s shocking, how can they do that?” said Helene, a French woman working here after receiving such a letter from her bank back home.

For some time Americans with bank accounts abroad have been required to report them to the Treasury’s Internal Revenue Service, in case they have US-taxable income in them.

But Fatca now puts the burden on foreign financial institutions to do the reporting. If they do not, the Treasury threatens a 30 per cent withholding tax on the bank’s US earnings.

Official estimates say Fatca will uncover enough hidden assets and income to generate some US$8 billion (RM26.7 billion) in additional tax payments to the US government over 10 years.

But with the huge task of collecting the data and handing it over, some foreign banks are wondering if allowing accounts from potentially US tax-liable customers is worthwhile.

In September, La Revue Suisse, a newsletter for Swiss citizens abroad, said some banks had stopped accepting accounts from certain clients because of the tougher regulations. AFP