USA Tightens Reporting Rules

April 19, 2012 International Tax CooperationTaxation in USA

Treasury Department Tighten Rules for banksWASHINGTON D.C. – New rules have been approved for financial institutions in the USA, requiring the disclosure of information by banks on accounts held by foreign individuals.

On April 18th the IRS adopted new regulations, which requires banks and other financial institutions to collect and report information to the IRS and the US Treasury Department on any interest earned in US deposit accounts which are held by non-residents.

Under the new rules, the IRS would be able to provide the collected data to tax authorities in other countries. Financial institutions will only be required to collect data on the account holder if they are a resident of a country with which the USA has a bilateral agreement for the exchange of tax information.

According to the IRS, the data reported as a result of the regulations will be an essential tool in the Service’s fight against tax evasion occurring in the USA and overseas. The provided information will also be invaluable for the USA in fulfilling its obligations to share data with foreign tax authorities under the countries’ bilateral information exchange agreements.

The new regulation has been heatedly debated since it was first proposed in 2011. Experts who spoke out against the change claimed that the new rules could lead to as much as USD 10 billion of foreign investment in the USA to be withdrawn. However, supporters of the new regulations claim that reporting requirements only apply to individuals and would not affect large scale corporate investments. The supporters also argue that even among individual investors, only those evading their tax liabilities in their own countries would be significantly affected by the new requirements.

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