IRS joins Forces with Finland to Crack Down on Income Tax Evasion
While Finland may have won the award for “happiest country in the world,” it may not be paradise for any U.S. Individual, Business, or Institution that gets caught in the IRS cross-hairs for using Finland as a conduit or catalyst for tax evasion.
- 1 IRS joins Forces with Finland
- 2 Did U.S. Banks Assist in Committing Tax Evasion in Finland?
- 3 Did U.S. Individuals Use Finland as a Conduit for Tax Evasion?
- 4 The U.S. and Finland have 3 Treaties in Place
- 5 IRS Agreed to Cooperates with Finland
- 6 A Few Important Facts About IRS Offshore Evasion
- 7 There are Many International Tax Enforcement Mechanisms
- 8 Golding & Golding, A PLC
IRS joins Forces with Finland
As provided by the Department of Justice:
A federal court in North Carolina authorized the Internal Revenue Service (IRS) to serve John Doe summonses on Bank of America, Charles Schwab, and TD Bank in an order that was unsealed yesterday, the Justice Department announced.
Did U.S. Banks Assist in Committing Tax Evasion in Finland?
The IRS is not sure yet, which is why the summonses were issued.
The John Doe summonses seek information about persons residing in Finland that have Bank of America, Charles Schwab, or TD Bank payment cards linked to bank accounts located outside of Finland.
The summonses are referred to as “John Doe” summonses because the IRS does not know the identity of the persons being investigated.
Did U.S. Individuals Use Finland as a Conduit for Tax Evasion?
Offshore tax compliance is a global phenomenon.
In accordance with FATCA (Foreign Account Tax Compliance Act) more than 110 countries and 300,000 Foreign Financial Institutions have agreed to report U.S. Account Holders.
As part of the agreement, the U.S has also agreed to disclose Account Holder information to treaty countries to ensure the foreign country can enforce its own tax rules.
Here, the country is Finland.
The U.S. and Finland have 3 Treaties in Place
The U.S. and Finland have agreed to work together of numerous fronts:
U.S & Finland Income Tax Treaty
As provided by the U.S. and Finland Bilateral Tax Treaty:
The Government of the United States of America and the Government of the Republic of Finland, desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital
U.S. & Finland FATCA Agreement
As provided by the U.S. and Finland FATCA Agreement:
Whereas, the Government of the Republic of Finland is supportive of the underlying policy goal of FATCA to improve tax compliance;
Whereas, FATCA has raised a number of issues, including that Finnish financial institutions may not be able to comply with certain aspects of FATCA due to domestic legal impediments;
Whereas, the Government of the United States of America collects information regarding certain accounts maintained by U.S. financial institutions held by residents of Finland and is committed to exchanging such information with the Government of the Republic of Finland and pursuing equivalent levels of exchange;
Whereas, the Parties are committed to working together over the longer term towards
As provided by the U.S. and Finland Totalization Agreement:
An agreement effective November 1, 1992, between the United States and Finland improves Social Security protection for people who work or have worked in both countries.
It helps many people who, without the agreement, would not be eligible for monthly retirement, disability or survivors benefits under the Social Security system of one or both countries.
It also helps people who would otherwise have to pay Social Security taxes to both countries on the same earnings.
IRS Agreed to Cooperates with Finland
As provided by the Department of Justice:
The Department of Justice and the IRS are committed to working with the United States’ international treaty partners to identify and stop individuals using hidden offshore accounts to evade tax laws,” said Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division. “
The United States does not tolerate offshore tax evasion, nor does it sanction tax evasion committed through U.S. financial institutions.
Our continued success in combatting offshore tax noncompliance has been helped by the assistance we receive through the network of tax treaties around the globe,” said IRS Commissioner Charles Rettig. “Yesterday’s effort reflects that the U.S. will return this help by working under the law with tax administrators in other nations to help them in their fight against tax evasion and avoidance.
A global economy should not be allowed to serve as a possible vehicle for tax evasion in any country.”
A Few Important Facts About IRS Offshore Evasion
- Not all “offshore crime” happens in Switzerland or Panama.
- U.S. Person means more than U.S. Citizens & Legal Permanent Residents
- The IRS cooperates with foreign countries to reduce global offshore tax evasion.
There are Many International Tax Enforcement Mechanisms
The IRS has many different ways to find you, including:
FATCA is the Foreign Account Tax Compliance Act, and it requires both individuals and foreign financial institutions worldwide to report foreign account and “Specified Asset” information to the United States.
FBAR Reporting Compliance is very important. Each year, certain U.S. Taxpayers have to Report Foreign Bank and Financial Accounts to FinCEN, or else the IRS may issue fines and penalties.
While preparing the FBAR is not always complex, FBAR Reporting rules, deadlines and penalties can be rough — especially since foreign and offshore reporting is a key IRS enforcement priority.
Since offshore tax division is becoming a global epidemic, it would only make sense that many of the nation superpowers have banned together to develop a plan to enforce offshore tax related matters.
The name of the enforcement group is J5, and consists of the heads of tax crime and senior officials from multiple organizations such as:
- Australian Criminal Intelligence Commission (ACIC)
- Australian Taxation Office (ATO)
- Canada Revenue Agency (CRA),
- Dutch Fiscal Information and Investigation Service (FIOD)
- Her Majesty’s Revenue & Customs (HMRC), and
- Internal Revenue Service Criminal Investigation (IRS-CI).
An example of a Hague request made on a case involving potential cross-border tax issues between Greece and the U.S.:
Pursuant to the Hague convention:
The United States District Court for the Western District of New York (“District Court”) presents its salutations to the Greek Central Authority, and requests assistance in obtaining evidence to be used in civil proceedings before this Court.”
Specifically, the District Court requests assistance in obtaining documents and oral testimony from (Redacted), a citizen of Greece, for use at trial. (Redacted) is married to the defendant (Redacted) and is also represented by the defendant’s counsel.
This Letter of Request is submitted in both English and Greek.
FATCA can result in Criminal Convictions
As provided by the DOJ:
Recently, on September 11, 2018 the former Chief Business Officer and former Chief Executive Officer of Loyal Bank Ltd, pleaded guilty under FATCA for committing FATCA Fraud.
Specifically, the CEO of the offshore bank (with offices in Hungary and Saint Vincent & Grenadines) pleaded guilty to conspiring to defraud the United States by failing to comply with the Foreign Account Tax Compliance Act (FATCA).
Baron was extradited to the United States from Hungary in July 2018.
FBAR can result in Criminal Convictions
As provided by the DOJ:
A Beverly Hills plastic surgeon was sentenced today to one year and one day in federal prison for failing to disclose to federal authorities a foreign bank account in which he deposited some of the nearly $1.3 million he earned while working in Dubai.
Mani pleaded guilty In July 2017 to one count of failing to file a foreign bank and financial account report (FBAR) for the 2013 tax year. When he pleaded guilty, Mani admitted failing to file FBARs with the Treasury Department for both the 2012 and 2013 tax years.
He also admitted that he failed to report on his federal income tax returns the vast majority of the approximately $1.28 million in foreign income he earned in Dubai for the years 2012, 2013 and 2014.
Potential Extradition is also at Play
The IRS and DOJ can purse extradition to bring those under criminal investigation to the United States.
An example of extradition in a FATCA matter:
Mr. Baron, the Former CEO was a Naturalized St. Vincent Citizen and Resident of Budapest, Hungary.
This is important, because the CEO was extradited to the United States. In other words, he was unable to fight extradition from Hungary and avoid having to come to the United States to face the music.
Many people falsely believe they can hide out in a foreign country to avoid extradition (The common myth of moving to Brazil to father a child with a Brazilian National), but oftentimes they cannot, and find themselves in a U.S Criminal Court of Law.
Here, the CEO was brought to the U.S. since the U.S and Hungary have a bilateral extradition agreement.
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