New Tax Haven: The United States
The United States, which has raised its voice against other countries for helping wealthy Americans to hide their wealth offshore, is emerging as a leading tax haven for rich foreigners. The United States is now called as the new Switzerland.
How the US became new tax haven?
For many decades, Switzerland has been the world capital for secret bank accounts. It had changed in 2007 when one of the bankers from UBS AG group blew the whistle how his bank is helping U.S. clients evade taxes with undeclared accounts offshore. To put an end to the practice, the US passed a law in 2010, the Foreign Account Tax Compliance Act (FATCA) that requires financial firms to disclose foreign accounts held by U.S. citizens and report them to the Internal Revenue Service (IRS) or face steep penalties. With pressure from the US, more than 80 Swiss banks, including UBS and Credit Suisse Group AG, have agreed to pay about $5 billion to the U.S. in penalties and fines.
Inspired by the FACTA Act, the Organisation for Economic Co-operation and Development (OECD) had formed even stiffer standards to help other countries to find the tax evaders. Since 2014, more than 90 jurisdictions have agreed to implement new disclosure requirements for bank accounts, trusts, and some other investments held by international customers. But few OECD countries such as Bahrain, Nauru, Vanuatu and the United States have resisted the new global disclosure standards.
The United States, without the new global disclosure standards, is attracting the foreigners to stash their wealth. The world rich are moving their accounts form places such as the Bahamas, Bermuda and the British Virgin Islands to Nevada, Wyoming, and South Dakota. The previous offshores are now subjected to the new international disclosure requirements. Many centuries-old European companies are opening their bases in places like Reno, Nevada to serve the needs of their foreign clients. The companies claiming that there is nothing illegal in attracting foreigners to put money in the U.S. with promises of confidentiality as long as they are not intentionally helping to evade taxes abroad. There are people who are legitimately concerned with their own health and welfare, and they are against avoiding taxes.
Though, the United States is not following the OECD guidelines, it is concerned about that massive capital inflows into secret accounts could become a new channel for criminal money laundering. The U.S. Treasury is proposing standards similar to the OECD’s for foreign-held accounts in the U.S. But similar such proposals in the past were not passed due to opposition from the Republican-controlled Congress and the banking industry.
The US should take the necessary measures to avoid becoming a new Switzerland. The US should help the developing countries like India by disclosing the accounts, which may be opened for tax avoidance.