Tax evasion

Putting the squeeze on Miami vice

by M.V. | NEW YORK

It has become a lot less comfortable to be an American with an undisclosed offshore

bank account in recent years, thanks to the federal prosecutors who have harried foreign
moneymen and lawyers suspected of aiding tax evasion, particularly in Switzerland.
Now life is also about to get harder for non-Americans who dodge their fiscal
obligations at home by stuffing savings in American banks.

Forced to offer some degree of reciprocity as it hounds other countries for information
on American tax cheats, the Internal Revenue Service (IRS) drew up a rule in 2012 that
would, for the first time, force American banks to cough up data on “non-resident
aliens” who hold accounts with them. This would then be passed on to tax authorities in
the account-holders’ home countries.

This gave rise to much huffing and puffing from banks which hold a lot of Latin
American money, for instance in Miami's financial district (pictured). The banking
associations of Florida and Texas jointly sued the feds, claiming the regulation was
overly burdensome and could lead to massive capital flight because legitimate customers
might fear their information would be disclosed to, and misused by, rogue governments.
This week, a federal court in the District of Columbia threw out the challenge, clearing
the way for the new rule to take effect in March.

The banking associations had argued in their motion for summary judgment that the rule
violated both the Administrative Procedure Act and the Regulatory Flexibility Act. They
contended that the IRS had got its economics wrong and that the new requirement would
cause more harm to banks than the agency had foreseen. In making their case that it
might spark enough capital flight to destabilize local banks and economies, they pointed
to the case of Canada, the only country that already has a reciprocal bank information-
exchange agreement with the United States. When that pact took effect in 2010, they
argued, large sums were pulled from American banks by panicky Canadians.

In a 23-page ruling, Judge James Boasberg swatted aside these arguments, writing that
the IRS had “reasonably concluded that the regulations will improve US tax compliance,
deter foreign and domestic tax evasion, impose a minimal reporting burden on banks,
and not cause any rational actor—other than a tax evader—to withdraw his funds from
US accounts.” The judge accepted the IRS’s contention that the alleged Canadian capital
flight was “a fiction”: though the amount of Canadian interest-bearing deposits dipped
after the reporting requirements were issued, they bounced back shortly afterwards. The
court also noted that the IRS will only pass information on to the 70 countries with
which it has information-exchange agreements. These require signatories to store
information responsibly and treat it as secret.

It’s unclear how much money could be affected. The IRS has estimated that foreign
individuals have up to $400 billion in American accounts. Miami’s financial centre has
the most to fear, though it has become less accommodating towards dirty money over
the past decade, and a good deal of what remains is thought to have been moved out of
banks and into local property. The court ruling also marks a defeat for the numerous
senior Florida and Texas politicians who threw their weight behind the banks, among
them Marco Rubio, a United States senator with presidential ambitions, who introduced
a bill to kill the regulation.

Had opponents been successful, the government would have found it harder to get other
countries to go along with the Foreign Account Tax Compliance Act (FATCA), a law
passed in 2010 that requires financial institutions in other countries to report to the IRS
funds held by American customers. FATCA, which is due to come into force in July
after several delays, has supercharged the expansion of a network of bilateral tax-
information accords, leaving the tax-shy with far fewer places to hide. America has done
much of the stick-wielding to make this happen. The court’s ruling this week ensures it
will also be able to offer some carrots.

NOTES:

Internal Revenue Service: Sở Thuế Vụ (IRS)

Đạo Luật Thủ tục hành chính (APA), Pub.L. 79-404 , 60 Stat. 237, ban hành ngày 11
tháng sáu năm 1946, là quy chế liên bang Hoa Kỳ quản lý cách thức theo đó, các cơ
quan hành chính của chính phủ liên bang của Hoa Kỳ có thể đề nghị và thiết lập các quy
định cụ thể.

Regulatory Flexibility Act: Đạo luật linh hoạt quy định có lẽ là nỗ lực toàn diện nhất
của chính phủ liên bang Hoa Kỳ để cân bằng các mục tiêu xã hội của quy định liên bang
với nhu cầu và khả năng của các doanh nghiệp nhỏ và các tổ chức nhỏ khác trong xã hội
Mỹ.

The Foreign Account Tax Compliance Act: Đạo luật Tuân thủ thuế Tài khoản nước
ngoài (FATCA) là một phần của Đạo luật ưu đãi để khôi phục việc làm năm 2010. Các
FATCA đòi hỏi công dân Hoa Kỳ , trong đó gồm cá nhân sống bên ngoài nước Mỹ, báo
cáo các tài khoản tài chính của họ tổ chức bên ngoài Hoa Kỳ, và yêu cầu các tổ chức tài
chính nước ngoài phải báo cáo cho Sở Thuế Vụ (IRS) về khách hàng Mỹ. FATCA được
thiết kế chủ yếu để chống trốn thuế ở nước ngoài và để bù đắp doanh thu thuế liên bang.