Does implementation of the Common Reporting Standard mean the end of tax optimization?
How did FATCA influence American tax payers?
Having come into effect, the US Foreign Account Tax Compliance Act (FATCA) primarily influenced tax payers of the USA.
Probably, you know that people possessing American citizenship or Green Card are obliged to pay US taxes on profit received in any other country.
It is the reason why the US citizens who live in countries with low tax rate such as Hong Kong or the Middle East states are finally forced out of paying US taxes on all their income and profit, and they are not able to use the advantages of relocation and apply tax planning tools.
The system of FATCA is extremely sophisticated. In simple terms, the essence of FATCA is the following: financial institution located anywhere in the world that have business relationship with US citizens or government institutions of the USA are obliged to register in the IRS and report detailed information concerning their business connections with all US persons automatically.
FATCA was developed in order to prevent citizens of the USA from illegal tax evasion by failing to report non-US bank accounts and non-US income.
Actually, it turned out to be such a headache for financial institutions that the majority of them decided not to accept US clients and asked their existing US clients to cooperate with other institutions. And it generally concerns any company dealing with financial related service.
The performance of FATCA is highly effective and it means that it is impossible for citizens of the USA to keep their affairs concealed from the IRS.
Does privacy coexist with the Standard?
The Organization of Economic Co-operation and Development have desired something similar for other countries and nowadays this concept is embodied in the Common Reporting Standard. The first act of information exchange is going to happen in 2017 and obligations imposed on all financial institutions in various countries will be the same as in FATCA. The details are absolutely clear but the effect will come after financial institutions start reporting precise information about their business relationship with clients to the country of clients’ tax residence. Similar to FATCA, the main goal of the CRS is preventing tax evasion.
Obviously, those entrepreneurs who rely on tax efficiency in the country where they do not possess tax residence will face certain difficulties. Meanwhile it does not mean that businessmen should forget about the idea of tax efficiency forever. It is possible to optimize taxes and reach desired effects using accurate planning and combination of several options. Especially, it is required to pay much attention to legitimacy of all the accords that is why we recommend you to ask professional assistants for advice.
The specialists of OLIESRVE are well experienced in tax planning arrangements and closely follow all the changes happening in business sphere in order to provide our clients with high level service.
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