A federal judge in the United States has dismissed a lawsuit brought by two American banking associations that attempted to strike down new tax rules that affect offshore financial centres.
In 2012 the US Internal Revenue Service drafted rules that required American banks, including their foreign branches, to report account information about “non-resident alien depositors” who earn more than $10 in interest per year.
The IRS plans to share that information with 72 jurisdictions with which it has tax treaties, according to the lawsuit filed by the Texas and Florida Banking Associations. Information about accountholders’ interest income previously only had to be shared with Canadian authorities, the lawsuit stated. It added that the expansion of information sharing raised serious “security concerns over the potential leakage and abuse of personal asset information with many countries that have unstable governments and porous law enforcement systems.”
Those concerns resulted in lost business for US banks, the banking associations alleged, and therefore the rule change should have been subject to more extensive administrative review.
But Judge James Boasberg rejected that view, siding with the IRS’ arguments that no “rational actors,” other than tax evaders, would change their accounts because of the new rules.
The US Department of Justice, which has been leading the government’s crackdown on tax evasion using offshore structures, boasted that the court ruling will help the implementation of the Foreign Accounts Tax Compliance Act because it will allow the US to share information with other jurisdictions.
FATCA, a US law passed in 2010, requires “foreign financial institutions” to submit details about their American accountholders to the IRS or face a 30 percent withholding penalty. Leaders of several Caribbean nations that have offshore financial services sectors have criticised the American law as unduly burdensome.
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