Experts say US tax disclosure bill could deter foreign capital
By Karey Wutkowski
WASHINGTON, Nov 5 (Reuters) – Tax experts on Thursday raised concerns that pending U.S. legislation to ramp up disclosure of offshore accounts could scare away foreign capital.
Swiss financial giant Credit Suisse’s U.S. tax director told lawmakers that the magnitude of proposed reporting and compliance requirements could hurt foreign investment in the United States.
“Rightly or wrongly, there are significant fears in the international banking community,” Tom Prevost from Credit Suisse said, while also praising the general intent of the bill in testimony at a House Ways and Means subcommittee hearing.
Under legislation introduced last week by the Senate Finance Committee and House Ways and Means Committee, foreign banks would be forced to disclose information about American customers, or face a 30 percent tax on their income from U.S. financial assets.
The bill aims to raise about $8.5 billion over a decade by collecting taxes on previously secret accounts.
The so-called Foreign Account Tax Compliance Act of 2009 comes as the United States escalates a crackdown on individuals who hide income offshore and the banks that help them. By one estimate, the United States loses $100 billion to offshore tax evasion annually.
A central plank in the U.S. effort was its lawsuit against UBS AG, which agreed to pay $780 million to settle a criminal lawsuit and consented to eventually turning over 4,450 names of U.S. account holders.
Dirk Suringa, a partner with law firm Covington and Burling and a former Treasury Department tax official, echoed Prevost’s concerns that the proposed legislation could hamper the inflow of mobile capital to the United States.
He also said the bill could lead foreign governments to impose a reciprocal withholding tax on U.S. financial firms that do not report account information to foreign countries.
“A few instances of reciprocal legislation would not be cause for concern, but a significant proliferation could impose an undue burden on foreign commerce,” Suringa said.
U.S. tax officials generally praised the legislation.
The chief counsel for the Internal Revenue Service, William Wilkins, said the bill would provide needed tools to catch more tax evaders.
“Recent experience has provided a wake up call for the United States, and tax administrations worldwide, on the problem of taxpayers hiding assets and income in offshore financial institutions,” Wilkins said.
Wilkins and Stephen Shay, the Treasury Department’s deputy assistant secretary for international tax affairs, said the government could generally be ready to comply with the bill, which would apply to payments made after December 31, 2010.
Richard Neal, chairman of the House Ways and Means Subcommittee on Select Revenue Measures, said on Thursday that the legislation could be passed by the end of the year.
(Reporting by Karey Wutkowski; Editing by Tim Dobbyn)