More on Transparency for Entities Acquiring Valuable Real Estate in Some U.S. Markets (1/23/16)

I recently reported on a common complaint against the U.S. which insists on more transparency from foreign countries but has some gaps in its transparency for foreign countries with respect to hiding ownership of real estate.  One Step in Attacking Lack of Transparency in U.S. (1/13/16), here.  Foreigners have been able to use entities to hide the true ownership of valuable real estate, particularly in such attractive destinations as New York.  In that blog, I noted that the U.S. is now attempting to require information about the true owners and, of course, the next step is making the information available to foreign countries.

Tax Notes Today, has a very good article on the issue in considerable more depth.  William Hoke, Reporting Rule Might Deflect Some Criticism of U.S. as Tax Haven, 2016 TNT 15-3 (1/25/16), no link available.  I recommend that those with a subscription to TNT or the sister publications in which it is printed read the article.  Some key points from the article that I thought interesting are:

1. There is criticism of the U.S. failure to join CRS, which was inspired by FATCA, but may operate to require more transparency in some cases.  Two quotes from the article:

J. Richard Harvey of Villanova University said that by implementing FATCA, the United States paved the way for more international reporting of financial assets, such as through the CRS. "Thus, it is somewhat ironic and disappointing that the U.S. has failed to fully participate in CRS," Harvey said. "Such failure could make it more difficult for the U.S. to successfully implement FATCA to the extent [that] other countries decide to not provide certain information with the U.S." 

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Andres Knobel of the Tax Justice Network said that while more than 70 jurisdictions have signed the multilateral competent authority agreement on the automatic exchange of financial account information under the CRS, a number of requirements regarding underlying treaties, national legislation, and confidentiality must also be met before the transfer of information can begin. Knobel likened the process to the Tinder online dating service. Automatic exchange of information "will take place only among jurisdictions that meet all the requirements . . . and that choose each other," he said.

That reminds me of the illusory contract illustration used by Hardy Dillard, former dean of UVA Law School, way back when I went there.  He illustrated the illusory contract of the boyfriend trying to bend the girlfriend to his intentions by promising that "I'll marry you if I choose to."  That, of course, was from a different era, with such illusory promises probably not necessary any more.

2.  Regarding the new initiative reported above to require ownership information for entities acquiring real estate:

Thierry Boitelle of Bonnard Lawson in Geneva said "this rather limited reporting" will be available to foreign governments by way of the information exchange provisions of tax and judicial assistance agreements. "Most likely it will be upon request, although there are good arguments for saying that contracting states have a fiduciary duty toward each other to exchange information spontaneously in case of suspicion of money laundering or tax evasion," Boitelle said. "I would hope this is actually a best practice being applied, but maybe I am dreaming or being naive about it."

3.  The article presents anecdotal indications that some foreign banks may be touting U.S. entities as avoidance mechanisms for CRS reporting.  The new initiative itself and particularly if expanded to other U.S. areas attracting foreign investment may limit this perceived opportunity.