Welcome to 1984 30 years later!
One of the most famous quotes from George Orwell’s 1984 is “Big Brother is Watching You.”. This quote is more true now than at any time in past. At the just concluded Global Forum on Tax Transparency convened by the OECD/G20 51 countries signed on to the automatic exchange of tax information.
The Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (the Agreement) provides for mutual exchange of information including the following:
“a) the name, address, TIN(s) and date and place of birth (in the case of an individual) of each Reportable Person that is an Account Holder of the account and, in the case of any Entity that is an Account Holder and that, after application of due diligence procedures consistent with the Common Reporting Standard, is identified as having one or more Controlling Persons that is a Reportable Person, the name, address, and TIN(s) of the Entity and the name, address, TIN(s) and date and place of birth of each Reportable
b) the account number (or functional equivalent in the absence of an account number);
c) the name and identifying number (if any) of the Reporting Financial Institution;
d) the account balance or value (including, in the case of a Cash Value Insurance Contract
or Annuity Contract, the Cash Value or surrender value) as of the end of the relevant
calendar year or other appropriate reporting period or, if the account was closed during such year or period, the closure of the account”
The United States is already engaged in the mutual exchange of tax information under provisions of the Foreign Account Tax Compliance Act, (FATCA). As recently seen the Department of Justice is demanding that those Swiss banks who have requested Non-prosecution agreements (NPA’s) ” cooperate fully with the DOJ, the IRS, and any other domestic or foreign law enforcement agency designated by the DOJ regarding all matters related to the conduct described in the NPA”.
The safeguards on the ultimate uses of the information are disturbingly vague, as one would expect in such a broad series of mutual agreements, including FATCA. The
Agreement provides as follows:
“All information exchanged is subject to the confidentiality rules and other safeguards
provided for in the Convention, including the provisions limiting the use of the information
exchanged and, to the extent needed to ensure the necessary level of protection of personal data, in accordance with the safeguards which may be specified by the supplying Competent Authority as required under its domestic law”
Just how these limitations on data transmission and use are to be enforced in light of varying national interests is also vague. What FATCA and the Agreement have in common though is a nominally admirable goal of preventing tax evasion, but there is the grave opportunity for abuse.
What is an almost absolute certainty though is that for U.S. taxpayers the timing of self disclosure by entering the Offshore Voluntary Disclosure Program (OVDP) or, if eligible, using one of the Streamline Procedures, is more pressing. The DOJ/IRS has already increased the costs of entering the OVDP for those taxpayers who have undisclosed accounts at those financial institutions under active investigation. The OVDP FBAR penalty, known as the civil miscellaneous penalty has been raised to 50% of the single years highest account balance instead of 27.5% for other OVDP participants. The reasoning is that by waiting for the financial institution to cooperate before coming forward the U.S. taxpayer is presumed to be “willful”. According to various DOJ and IRS officials the presumption is based upon the fact that the OVDP in various forms has been available to taxpayers since 2009.
Some taxpayers will take the it as an object of faith that the IRS will not reach everyone and therefore they will not come forward. Not coming forward may well mean multi-year 50% FBAR penalties and 75% tax fraud penalties in addition to possible prosecution. There is a line from the Kenny Rogers song The Gambler, that sums up the whole situation:
“You got to know when to hold ’em, know when to fold ’em Know when to walk away and know when to run”
In light of global information exchange agreements now is the time to run toward disclosure.