Tuesday, May 28, 2013

U.S. Treaty Request for Julius Baer Domiciliary Company Accounts with U.S. Beneficiaries (5/28/13)

Julius Baer has sent certain U.S. ultimate owners of accounts a request to consent to the turnover of documents pursuant to an IRS treaty request.  The request states:
The IRS is seeking information with regard to accounts of certain U.S. persons (as beneficial owners) owned through a domiciliary company (a "DC") that have been maintained with Bank Julius Baer & Co. Ltd. ("Bank Julius Baer" or "the Bank") In Switzerland- as applicable in any given case in the ''IRS Treaty Request"- at any time during the period from January 1, 2002, to December 31, 2012.
These accounts include such held by a domiciliary company (a "DC account") with a U.S. beneficial owner that included U.S. securities but for which the Bank has no record of the timely filling of accurate Forms 1099 naming the account's U.S. beneficial owners and reporting to the IRS all payments made to such U.S. beneficial owners and for which there is evidence that the U.S. beneficial owner exercised control over the account in violation of the DC's corporate governance.
One Swiss attorney is quoted as follows (Giles Broom, Julius Baer Tells American Clients of U.S. Information Request (BloombergBusinessweek 5/28/13), here.)
“The Swiss government is taking a broad interpretation of the treaty to allow the handover of data in cases involving offshore structures,” said Milan Patel, a former IRS trial attorney who is now a partner at Zurich-based law firm Anaford AG. “The banks seem willing to oblige to show they are cooperating with the U.S. once the Swiss government approves the turnover to avoid any violation under Swiss banking secrecy.”
Since, as noted in the article, Julius Baer is only one of at least 14 financial firms being investigated, I think we can expect to see more such requests.  It is interesting that, at this time, the requests are only for accounts that use a "domiciliary company." Directly owned accounts are not within the scope of the treaty request.  Don't know precisely what to make of that without more speculation than I am willing to make.

7 comments:

  1. I'm not sure why the press picked up on this only now. Swiss bankers have been telling their former Baer clients for weeks that the Baer was on the receiving end of a treaty request from the US.

    In light of the IRS' ability to close the door on an entire class of account holders (see FAQ 21), I've seen an increasing number of Baer clients pursuing voluntary disclosures before the IRS closes the door on Baer clients, or Baer provides the information pursuant to the treaty request.

    (Also interesting, in terms of offshore tax enforcement and the delay in media reporting, is that the US served a treaty request on the Liechtenstein Foundation Supervisory Authority, in April, for information regarding Liechtenstein foundations and their bank accounts, with US beneficial owners.)

    Jack, I also noted that the Julius Baer request was limited to "domiciliary companies". It could be that Baer as a matter of policy recommended establishment of the bank accounts in the names of such companies. However, the IRS already knows that there are many, many US clients of Baer who had accounts in their own names, rather than in the name of a supervening entity.

    ReplyDelete
  2. The quote from the letter refers to form 1099, I believe they mean form W-9.
    Also, it is not clear whether the info request applies to all domiciliary company accounts; as I recall, for UBS it was for accounts that at any time were above the threshhold of $250K in value.

    ReplyDelete
  3. They may mean Form W-9, but wouldn't a W-9 be linked to a Form 1099 filed by Julius Baer? What if, for example, the bank got the W-9 but did not file the Form 1099? Wouldn't the IRS be interested in all U.S. taxpayers who through domiciliary company deposits were not given Forms 1099?

    ReplyDelete
  4. I, and I think others, have referred to this type of request as John Doe Treaty Request. They are much like John Doe Summonses, but have no court to enforce them and rely upon the good faith of the treaty partner. In this case, I suspect that getting Switzerland to respond may be based on more than good faith (such as the negative consequences to the Bank and Switzerland if they did not respond).

    ReplyDelete
  5. I think Julius Baer representatives have been telling at least some depositors that disclosure was imminent for much longer than a few weeks. Some were told informally back in the summer of 2012. But, the formal notices just came out in the last couple of weeks.

    ReplyDelete
  6. I had not thought of the possibility you mention. I would think that you are correct that the US would be interested in all domiciliary company accounts beneficially owned by US taxpayers.

    Looking at the language in the W9, it does not seem that a client's providing of a W9 is sufficient to allow reporting through a 1099 unless the client also waived bank secrecy, so for a foreign bank not legally required to report on a 1099, it seems that a W9 would not necessarily entail a 1099 being filed.

    ReplyDelete
  7. Quite impressive post thanks for share.......

    ReplyDelete

Please make sure that your comment is relevant to the blog entry. For those regular commenters on the blog who otherwise do not want to identify by name, readers would find it helpful if you would choose a unique anonymous indentifier other than just Anonymous. This will help readers identify other comments from a trusted source, so to speak.