Tax Lawyer's Blog

Tax News.com reports that financial institutions in the United Kingdom say they will stop accepting American clients if the U.S. approves President Obama’s planned changes in the reporting and withholding tax rules:

Banks and wealth managers are warning that it will no longer be cost effective for them to service US clients if tough new reporting rules, part of the Obama administration’s intended crackdown on international tax avoidance, are incorporated into the U.S. Qualified Intermediary (QI) program.

Under the proposals, announced by the U.S. Treasury earlier this month, foreign financial institutions that have dealings with the United States will be required to sign an agreement with the U.S. Internal Revenue Service (IRS) to become a Qualified Intermediary and share the same information about their US customers as is currently required of US financial institutions, “or else face the presumption that they may be facilitating tax evasion and have taxes withheld on payments to their customers.”

Proposed changes to the QI program were put out to consultation by the IRS last October, but have yet to be incorporated into U.S. tax law. Under the reforms, financial institutions that are QIs would have to provide early notification of material failure of internal controls, improve evaluation of risk of circumvention of US taxation by US persons, and include audit oversight by a U.S. auditor.

The IRS insists the stricter rules are necessary to enforce compliance and close the tax gap:

“This is an important program, and we cannot tolerate anyone abusing or skirting the requirements,” said IRS Commissioner Doug Shulman. “This proposal lays out a strong set of actions in our ongoing effort to strengthen the Qualified Intermediary program.”

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