US gobbles up privacy over tax, banking
Global finances and communications continue to erode the boundaries which used to divide nations, putting personal financial data in the hands of other nations.
The issue is likely to be front and centre at the G20 summit in Australia this year.
The behemoth that is the USA rolls inexorably across oceans and land masses, mopping up others’ privacy by using national laws which take effect internationally to gobble up the rights of smaller individual nations and people.
The latest US-imposed hegemonic legislation is the Foreign Account Tax Compliance Act (FATCA). This American law – with implications for Australians and our banks – aims to reduce offshore (outside the USA) tax evasion and regain US federal tax revenues from American account holders at the world’s foreign (non-US) financial institutions.
The act followed a 2009 court case in which Swiss Bank UBS was found to have assisted American nationals to evade paying American taxes. As a result, UBS agreed to pay the US government $870 million in fines and restitution, and to provide the names of suspected tax cheats. According to the US Department of Justice, the use of offshore bank accounts to avoid paying American taxes costs the US Treasury more than $110 billion annually.
The wide-reaching FATCA was passed as part of the 2010 Hiring Incentives to Restore Employment Act (Hire Act), becoming law in March 2010. FATCA requires:
- individuals to report their financial accounts held outside of the United States, and
- foreign (that is, non-US) financial institutions to report to the Internal Revenue Service (IRS) about their American clients.
To enforce FATCA, the US government is signing agreements with foreign governments allowing the trade of individuals’ financial data. FATCA’s large scope and international presence has led to fears about the expanding reach of the US Treasury and IRS. The US Treasury is collaborating with foreign governments to develop two alternative model inter-governmental agreements, model 1 and model 2:
- model 1 requires signatories to report all FATCA-related information to their respective governmental agencies, who then report this information to the IRS. The majority of signatories to model 1 also have reciprocal agreements with the US; thus the IRS will provide relevant information to the signatory country regarding the taxation of the signatory nation’s citizens in the US;
- model 2 requires signatories to directly report to the IRS. There is no reciprocal agreement in this model. Currently, Japan and Switzerland are the two signatories to model 2 agreements.
As of 29 November 2013, the US has entered into model 1 agreements with the Cayman Islands, Costa Rica, Denmark, France, Germany, Ireland, Mexico, Norway, Spain and the UK, and model 2s with Japan and Switzerland
The Australian Government is seeking to address concerns regarding the infringement of individuals’ data privacy rights and Australian taxation sovereignty before signing an intergovernmental agreement with the USA.
Compliance with Australian privacy law
The FATCA has been the subject of July 2011 discussions by the Australian Government’s Privacy Advisory Committee. The Office of the Australian Information Commissioner’s chief concern is ensuring the Act’s compliance with Australian privacy law; as such, it was recommended that the issue be raised with the Department of the Treasury.
Ernst & Young and Clayton Utz have both raised concern as FATCA ratification may conflict with domestic and Commonwealth privacy and confidentiality laws.
FATCA and the G20 International tax avoidance was a key issue discussed at the G8 Summit in Ireland. The resultant Lough Erne Declaration states that member states will ‘share tax information, seek to uncover shell company ownership structures and ensure that multinational companies don’t shift profits offshore to tax havens.’
Following on from the 2013 G20 Summit, increasing tax transparency is expected to be hotly discussed when Australia hosts the G20 Summit in 2014. G20 countries have called for a coordinated effort to halt international tax evasion by sharing bank and tax records by 2015.
International tax avoidance: Australia and the EU
As part of the Delegation of the EU to Australia, European Commissioner for Taxation, Customs, Statistics, Audit and Anti-Fraud, Algirdas Semeta conducted a taxation industry roundtable in December 2013 with Communications Minister Malcolm Turnbull and the CEO of Australian Customs and Border Protection Service Michael Pezzullo.
CLA thanks Hannah Gobbett and Bernard Pulle of the Australia Parliamentary Library for details of these developments. Their full paper is at: http://tinyurl.com/lgfkbo9