US IRS may tap local banks to help in campaign after Fil-Am tax evaders
MANILA, Philippines—Big banks in the Philippines may soon be deputized by the United States tax collection agency Internal Revenue Service (IRS) to perform audit functions on Filipino-Americans and greencard holders.
This is in line with the US government’s crackdown on tax evasion, a visiting international tax expert said.
Mississippi-based tax lawyer Kurt Rademacher said in an interview on Friday that the environment was becoming much tougher for American nationals or permanent residents using offshore markets as tax havens because banks around the world were now under pressure to join the IRS’ extra-territorial audit network across the globe.
Under the Foreign Account Tax Compliance Act (Fatca) passed by the US Congress, the US will waive withholding taxes on purchases of US securities, whether stocks or bonds, made by non-US financial institutions on behalf of their private banking clients if these institutions sign up for a program to audit clients with US connections.
“American citizens or green card holders, regardless of where they are, have to pay taxes on income. There are a lot of them who are not paying,” said Rademacher, who is from US law firm Butler Snow O’ Mara Stevens & Cannada PLLC.
He said the goal of Facta was to encourage non-US institutions to perform an audit function for the IRS.
“The IRS did not have the manpower or resources in a lot of places, and it does not have authority to audit financial institutions to determine if they’re doing business with Americans who don’t pay their taxes.”
Facta was contained in the Hiring Incentives to Restore Employment (HIRE) Act, which took effect on March 18, 2010. The 390-page implementing rules on FACTA came out on February 9.
“If everything works out the way the US Congress has designed it,” Rademacher said, “there won’t be a penny of withholding tax that will be collected on the purchase of US securities because all banks would sign up for the program.”
Rademacher said nonparticipation in the Facta program would mean an increasingly more difficult global business environment for banks. In the Philippines, for instance, he said failure to sign up for the program would hamper a bank’s ability to invest in the US capital markets on behalf of premium clients.
“A lot of businesses are family-controlled and these businesses generate a lot of free cash flow that are invested in a broad-based portfolio. That portfolio of high net-worth families are invested in US equities. Philippine banks that don’t sign up will be unable to offer those securities to their high-networth clients,” he said.
While “extremely territorial in scope,” Rademacher said banks and clients with US connections must brace for such an environment as the US seeks more ways to address its huge budget deficit.
