Americans renouncing citizenship surge sixfold as tougher tax rules loom
The US, the only nation in the Organization for Economic Cooperation and Development that taxes citizens wherever they reside, is searching for tax cheats in offshore centers, including Switzerland, as the government tries to curb the budget deficit.
Shunned by Swiss and German banks and facing tougher asset-disclosure rules under the Foreign Account Tax Compliance Act, more of the estimated 6 million Americans living overseas are weighing the cost of holding a US passport.
“With the looming deadline for Fatca, more and more US citizens are becoming aware that they have US tax reporting obligations,” said Matthew Ledvina, a US tax lawyer at Anaford AG in Zurich. “Once aware, they decide to renounce their US citizenship.”
Fatca requires foreign financial institutions to report to the Internal Revenue Service information about financial accounts held by US taxpayers, or held by foreign entities in which US taxpayers hold a substantial ownership interest. It was estimated to generate $8.7 billion over 10 years, according to the congressional Joint Committee on Taxation.
The 2010 Fatca law requires banks to withhold 30 percent from "certain US-connected payments" to some accounts of American clients who don't disclose enough information to the IRS. While banks can sign agreements to report to the IRS individually, many are precluded from doing so by privacy laws in their jurisdictions.
The Treasury Department last month announced that the IRS will delay the start of Fatca by six months until July 1, 2014, to give foreign banks time to comply with the law. The extension of the act follows a previous one-year delay announced in 2011.
Financial institutions including Canada's Toronto-Dominion Bank and Allianz SE of Germany have expressed concerns that Fatca is too complex.
The latest delay comes after the Swiss government agreed in February to simplifications that will help the country's banks implement Fatca.
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