The IFC Forum, an advocacy group representing financial services and law firms in British offshore financial centers, has questioned whether the new OECD system for tax information sharing will be effective without U.S. participation.
More than 90 jurisdictions have agreed to implement the common reporting standard to automatically exchange financial account information between governments to prevent tax evasion.
All British offshore financial centers, including Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, Guernsey, Jersey and the Isle of Man, are early adopters of the new standard.
However, the U.S. has declined to join CRS, arguing that it has already established an extensive network of intergovernmental agreements under the Foreign Account Tax Compliance Act.
FATCA was designed to require information reporting to the U.S., including information on accounts indirectly owned by individuals and trusts.
Although the U.S. has agreed to supply basic information to other countries, the IFC Forum said, it will not include information on accounts that are indirectly owned.
The common reporting standard goes further by requiring full exchange of information on indirectly held financial accounts and “would require the U.S. to match the obligations of fully effective disclosure which the U.S. has imposed on others,” the advocacy group said.
“In order to be effective, CRS must be truly global,” said Jack Marriott, chairman of the IFC Forum. “Is it viable without participation from the world’s largest financial center? Similar concerns apply to other proposed transparency measures such as the availability of ultimate beneficial ownership information.”
The IFC Forum responded to an article in The Economist which reported on the decision by the United States’ refusal to join CRS.
The article suggested that having launched and led the battle against offshore tax evasion, America is now part of the problem. A flurry of media reports by CBS, Bloomberg, Germany’s Die Zeit and others has suggested that as a result of its decision not to participate in the common reporting standard and a wider lack of disclosure, the U.S. will attract money from other parts of the world.
“America seems not to feel bound by the global rules being crafted as a result of its own war on tax-dodging. It is also failing to tackle the anonymous shell companies often used to hide money,” The Economist stated.
Richard Hay, counsel to the IFC Forum, said “Clients who wish to avoid [the common reporting standard] may move money to the U.S. to take advantage of the lower disclosure standards which will apply there. As the OECD already appears to have recognized, it only takes one hole in the balloon for all of the air to go out. The U.S. must participate if CRS is to be effective.”