Posts by Larissa Smith
BY Larissa Smith
FILED UNDER
Commercial Law
Criminal Law
Finance
Public International Law
Taxation
Privacy in Switzerland Under Threat from the IRS
Woody Allen once said, “If only God would give me some clear sign! Like making a large deposit in my name at a Swiss bank.” For decades, the notion of having a Swiss bank account has been viewed as a status symbol. With roughly 27% of the world’s foreign holdings in 2008 (an estimated $2 trillion – Bondi, Bradley J. 2010), the Swiss have certainly cornered the international market on discretely protecting assets. In short, Switzerland has been the prestigious place for Americans to hide money from the IRS. But thanks to proceedings between the IRS and the Swiss Parliament, such references may soon become no more than an outdated joke.
This past summer, the IRS took serious steps in an international attempt to cut down on tax evasion through the use of offshore accounts in Switzerland. The IRS has entered into an agreement with the Swiss Parliament to release over 4,000 names of U.S. citizen clients of UBS AG with significant holdings in Switzerland.
The trouble began when the IRS decided to investigate UBS for helping Americans evade US taxes. UBS was facing potential criminal prosecution, which could have threatened the very existence of one of the largest and well-reputed banks of our time. In a move to save the bank, UBS executives pressured the Swiss government for ways around the secrecy banking laws to give the…
Taxing Banks for Risky Investments
As governments around the world broke open their piggy banks to bail out most of major financial institutions, it comes as no surprise that these governments are feeling a bit strapped for cash. In looking for a way to recoup capital spent on these institutions because of their risky investment practices, a popular proposal is the taxing of banks for such risky investments.
Numbers that the Americans are debating include a levy at 0.15% for 10 years on all financial institutions with more than $50 billion in consolidated assets.
With Germany and England ready to take action and implement similar levies, and with Obama seeking to push the US to do the same, it’s unclear what kind of overall effect these levies would have on banking if they are carried out on a piecemeal, domestic basis. These financial institutions are international in character. Their activities transcend national borders, and thus any attempt at regulation will need to account for the cross-border transactions and international nature of the institutions. Will domestic regulation really solve the inherent problem of big banks making big investments without thinking about the potentially big (and devastating) consequences? Probably not. So then what’s the point?
Edwin M. Truman, Senior Fellow at the Peterson Institution for International Economics in Washington, proposes a different analysis. He says, “There are two dimensions — paying for the past and paying…
Piracy – Who DOESN’T Bear the Cost
Piracy has always been a major concern in the shipping world. However, the surge in piracy, particularly off the coast of Somalia over the past few years, has called for specific changes in shipping practices.
In the first nine months of 2009, there were 306 incidents of piracy reported to the IMB Piracy Reporting Centre (PRC). Of this number, 114 times pirates boarded the vessel, 34 times pirates hijacked the vessel and 88 times vessels were fired upon. While the Gulf of Aden and the East Coast of Somalia remain the regions of highest threat, pirate activity has expanded into the southern parts of the Red Sea, the Bab el Mandab Straits and the East Coast of Oman. This has led to the development of an entire industry of pirate negotiators and security firms who undertake to settle on ransom amounts and organize the drop shipment of the cash.
Shipowners sending their vessels through these dangerous waters have been slow to respond to these dangers, but have finally starting coming around to the inevitable: the beefing up of security for the ships. This includes paying extra amounts to join a protected convey in high-risk waters, hiring armed helicopters to fly over the ship, and in some instances, hiring armed guards to be on board the vessel itself. The great fear, of course, is that if a ship has its…
A Direct Route to Russian Social Insurance Contributions
The economic crisis has hit Russia hard and left the government scrambling for ways to fill its budget. Efforts to revive the Russian economy have taken a significant chunk out of the Stability Fund, Russia’s emergency funds for economic stability largely accrued from natural resource profits. This vast amount of government spending has left the Russians eager to do a bit of spring cleaning and tighten up budget income sources. This has led to a series of tax developments and increased tax enforcement.
One such effort has been the transformation of taxation for social benefits with the coming into force on January 1st, 2010 of federal law N 212-FZ “On Insurance Contributions to the Pension Fund of the Russian Federation, Social Security Fund of the Russian Federation, Federal Medical Insurance Fund of the Russian Federation and Territorial Medical Insurance Funds.” Before 2010, there was a single tax for social benefits called “Edinnii Sotzialnii Nalog” (Unified Social Tax), which was collected by the federal tax revenue agency on behalf of the government. Russia has now opted for a more targeted approach to this tax. Instead of a single tax, the new legislation introduces employer payments to four separate funds: pension fund, social security fund, federal medical insurance fund and territorial medical insurance fund.
As a way of transitioning from a single tax to a series of contributions, the Russian government has…
Death and… Capital Gains Taxes
A new year, a new US budget. This year, the name of the game is payback – paying back for all the extravagant government spending over the past year. On President Obama’s budget agenda is a variety of tax revisions and increases following Bush tax cut expirations aimed at Wall Street and America’s affluent in order to fund the on-going expensive public spending, aimed at pulling America out of the global recession. While much of the American public is occupied with the move to reinstate higher progressive taxes for the upper-end earners (as high as 39.6 percent for singles earning more than $200,000 a year), that isn’t the only major change Obama is looking to make.
Obama is looking to implement progressive increases in capital gains tax. The plan would initially raise the tax from 15 percent to 20 percent. But what does this mean for the market?
Capital gains tax is traditionally viewed as a method by which the government can encourage more long-term investments. The classic example of a capital gains investment is the purchase of property. By offering investors a lower rate of tax, the government can effectively stimulate these supposedly more-secure, longer term investments. The low capital gains tax was one large factor leading to the build up of the housing market boom. But now, we are facing the aftermath of the housing market bust. People…
Global financial tax – taxation in the next generation?
The hot topic on the minds of world leaders is the potential for a global tax on financial transactions. The idea seems to have emerged from the French, who saw the tax as a potential way to generate financial development aid. The tax would be a form of Tobin tax, although instead of being at stabilization of a currency, the primary goal would be to raise international funds to deal with crises.
The idea was subsequently picked up by UK PM Gordon Brown and presented to the G20 at their meeting in St Andrews, Scotland on Nov 7th. Brown presented the tax as an instrument to fund future bank bailouts. Moreover, he sees the tax as increasing accountability in the financial sector. However, the idea was not received as well as had been hoped. The USA has rejected the idea, and Canadian Finance Minister Jim Flaherty also came out against the tax.
While things looked dismal for the tax proposal following the G20, it seems that at least as far as the US is concerned, the idea in principle may still be kicking around Congress. U.S. House of Representatives Speaker Nancy Pelosi has spoken out in favor of a similar proposal, affectionately named the Wall Street tax, from which funds would be used for job-creating legislation sought to be passed in December. The Democratic proposals…
The Beginning of an Offshore End?
On October 27, 2009, a bill to amend the Internal Revenue Code was introduced to both chambers of Congress entitled: Foreign Account Tax Compliance Act of 2009. The act could stir up some serious trouble for investors who have been using legal and accounting gymnastics to spread wealth to offshore bank accounts where reporting, accountability and taxation is at a much lower standard.
As the text of the bill currently stands, the following serious cooperative and punitive measures would be in store for foreign financial institutions and individual investors:
- 30% withholding tax on payments to foreign financial institutions and other entities unless they acknowledge the existence of offshore accounts to the IRS and disclose relevant information including account ownership, balances and amounts moving in and out of the accounts;
- Reporting of offshore accounts with values of USD50,000 or more by individuals and entities on their tax returns;
- Increasing the statute of limitations from 3 to 6 years specifically when offshore accounts are unreported or misreported;
- Requiring advisors who help set up offshore accounts to disclose their activities or suffer a monetary penalty;
- Requiring electronic filing of information reports about withholding on transfers to foreign accounts; these reports will be matched with IRS tax returns;
- Strengthening rules and penalties with regard to foreign trusts, including rules to expose payouts from foreign trusts to US beneficiaries as well as US transfers
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