Offshore Considerations. Erosion of Offshore Tax Secrecy

 Offshore Considerations

2009 was dramatic in the offshore world.  The IRS’ success against UBS eroded Swiss banking secrecy, effectively ending “going offshore” to hide money from the IRS.  Going offshore for asset protection from civil creditors, however, is still viable and effective, but must be tax complaint.

 Erosion of Offshore Tax Secrecy

• Facing a criminal indictment for encouraging and facilitating tax fraud, UBS settled with the US Government and paid a $780 million fine in 2009.  The US then served a “John Doe” summons in a parallel civil case, and UBS settled again, revealing the names of some 4,500 Americans with accounts they were assured were “secret”.
• The IRS is also investigating HSBC, Credit Suisse, Bank Julius Baer and others.  Banks in other countries will also be targeted.  The IRS announced that it is establishing field offices in Panama, Australia and China.
• The OECD (Organization for Economic Co-Operation and Development), a multi-governmental organization based in Europe, is pursuing its own campaign against “tax havens”.  In March, 2009, virtually all of the formerly “secret” tax haven jurisdictions, including Switzerland, Liechtenstein and Monaco, agreed to the exchange of banking information with foreign governments, including the US.  This ends decades and in some cases centuries of banking secrecy.
• Domestically, President Obama and prominent Senators have introduced proposed legislation targeting foreign accounts and Americans who own them.  President Obama’s legislation seeks to increase the IRS budget and manpower to pursue undeclared money offshore, including hiring 800 IRS special agents to investigate foreign accounts.
• Government officials of Caribbean and Central American jurisdictions have advised us that the Obama administration has already indicated to them that Tax Information Exchange Agreements (TIEs) are on the way and are non-negotiable.  Under these TIEs, the US Treasury Department can request assistance directly from foreign banks in cases of IRS civil audits.