Tax havens beginning to lose protection
U.S. breaks Swiss secrecy, but some fear overreach
Wealthy Americans used to have no shortage of places to hide their assets from tax collectors — the Cayman Islands, Switzerland or Luxembourg. But that is changing. Government efforts to combat offshore tax evasion are making it harder for the well-off to dodge the Internal Revenue Service. Last week, the Justice Department struck a plea agreement with Credit Suisse to provide account information that federal prosecutors say will help them track down tens of thousands ofU.S. tax cheats. The Swiss banking giant pleaded guilty to conspiring with its American clients to dupe the IRS, agreeing to $2.6 billion in fines.
And federal prosecutors say this is just the beginning.
“Ourwork in the offshore area is far from done,” Deputy Attorney General James Cole said. “We expect additional public actions in this area in the coming months.”
But in the government’s push to plug holes in the tax system, critics worry that some well-meaning taxpayers are being harmed.
Finding those who have shirked their tax responsibilities has always been difficult. Switzerland, whose centuries-old culture of banking secrecy has made it a sanctuary for the world’s rich, has waved off U.S. pleas for cooperation for decades.
Yet Swiss authorities have softened their position. In August, they reached a deal with the United States to allowsome Swiss banks to pay fines to avoid or defer prosecution over tax evasion by wealthy American customers. The deal has attracted 106 Swiss banks, which have agreed to disclose information about their clients.
A key turning point for Justice came in 2009 when UBS turned over information about 4,700 account holders as part of a $780 million settlement with the department.
“Ten years ago, if you had asked somebody if the IRS could find out about their secret Swiss bank account, they’d say no,” said Rebecca Wilkins, senior counsel at Citizens for Tax Justice. “But the UBS case broke it all open.”
Essential to the effort has also been the Foreign Account Tax Compliance Act, which made it easier to get information about the foreign bank accounts of American taxpayers. The law requires foreign banks to annually disclose the accounts of their American customers or pay a 30 percent tax on their U.S. investment income.
It has become onerous for some Americans working overseaswhoare paying their taxes, saidMarylouise Serrato of American Citizens Abroad.
“We are hearing and seeing Americans being denied mortgages, bank accounts and pension funds overseas by some foreign financial institutions that are nervous about the risks,” she said.
Serrato also takes issue with one of the government’s most successful taxevasion initiatives, the Offshore Voluntary Disclosure Program. She argues that many of those taxpayers caught by that IRS program were not deliberately evading taxes. She has received complaints fromAmericans living overseas who did not know they had to declare foreign pension plans and were hit with thousands of dollars in fines once they alerted the IRS.