A Tax Notes article today makes the following key points (Marie Sapirie, Final Regs Require Reporting on Nonresident Alien Deposit Interest, 2012 TNT 75-1 (4/18/12)):
1. The regs permit the IRS to offer a "quid pro quo" to foreign countries from whom the IRS desires cooperation in obtaining similar information relevant for U.S. tax purposes. The article notes:
"These regs were expected and necessary to implement the intergovernmental agreements as part of FATCA. Based on the joint statement released with the FATCA regulations, reciprocity from the U.S. was going to be required," said Carol P. Tello of Sutherland Asbill & Brennan LLP. * * * *
The preamble to the final regulations reasons that foreign countries are unlikely to want to hand over information on Americans with accounts in their countries if those countries don't stand to get anything in return. Other countries are "keenly interested in addressing offshore tax evasion by their own residents and need tax information from other jurisdictions," according the preamble.2. The banks and their mouthpieces cry foul because, they claim, this puts U.S. banks at a competitive disadvantage to banks in foreign countries who want to facilitate tax evasion. Thus, one claims:
The problem for U.S. banks is that until all countries are on the same page regarding information collection, protection, and exchange, the rule that U.S. banks must report information on interest earned by NRAs puts those institutions at a competitive disadvantage to institutions in other countries where the banks are stable, there is no tax on interest income, and information sharing does not occur, said Mark J. Scheer of Gunster, Yoakley & Stewart PA.
"At the end of the day, [the reporting requirement] doesn't affect anything other than where the depositor puts his money," Scheer said. That is because the United States does not collect any tax on interest earned by NRAs.This notion is, apparently, that the United States banks can compete only if they engage in the same inappropriate behavior foreign competitor banks do. Competition fueled by greed, thus, is the key moral value they claim. That is strange. I suppose on the same notion, we should not have the FCPA because our competitors pay bribes and kickbacks. The better notion, adopted in this regulation initiative, is that gambits to erode the various countries' tax bases should be discouraged and mutual sharing of information to prevent such erosion is a good thing.
3. The regulations contemplate sufficient flexibility to address the concern that foreign countries receiving the information from U.S. banks might use the information for nontax purposes. At a minimum, an information sharing agreement is required; such agreements address limited use of the information shared. The IRS is not compelled to provide the information. Contemporaneously with the regulations, the IRS issued Rev. Proc. 2012-24, 2012-20 IRB 1, link to be posted later, listing the countries having the necessary information sharing agreement. The Rev. Proc. provides for automatic sharing with Canada.
JAT Comment: Needless to say, the report notes, the Republican nay sayers are not happy with anything the administration does, particularly when it affects a powerful Republican constituency -- big banks who want to attract low-cost foreign deposits. Economically, the cost of foreign deposits are less when a big incentive for the depositors is to hide the money from their Governments. That is why the Swiss did not pay much for the deposits of U.S. persons wanting to hide their money there.