Demand for international tax expertise is rising at accounting firms as proposed legislation on Capitol Hill is targeting offshore tax havens, according to the Denver Business Journal. The Foreign Account Tax Compliance Act of 2009, companion bills introduced on October 27th, would amend the Internal Revenue Code of 1986 to prevent the avoidance of tax on income from assets held abroad. The bills’ sponsors, House Ways & Means Chair Charles Rangel (D-NY) and Senate Finance Committee Chair Max Baucus (D-MT), project the legislation would raise more than $8 billion in tax revenue.
Passage of the bills would be an indication that governments around the world are increasingly focused on international tax issues, the Denver Business Journal quotes John Barber, an International Tax Partner with Grant Thornton LLP, as saying. Facing this growing trend, executive search firm, A.E. Feldman, says international tax jobs are already heating up. Anticipating a surge in demand for their services, accounting firms are actively seeking talent to ramp up their international tax practices.
Lawmakers Target Overseas Tax Abuses
The Foreign Account Tax Compliance Act would require overseas financial institutions, foreign trusts, and foreign corporations to provide information about their U.S. account-holders, grantors, and owners.
Provisions of the legislation are summarized by KPMG as follows:
• Require 30% withholding on payments to foreign financial institutions and other entities unless they acknowledge the accounts’ existence to the IRS and disclose relevant information including account ownership, balances and amounts moving in and out of the accounts
• Require individuals and entities to report offshore accounts with values of $50,000 or more on their tax returns and extend to six years the statute of limitations on assessment, when offshore accounts are unreported or misreported
• Require advisors who help set up offshore accounts to disclose their activities or pay a penalty, and require electronic filing of information reports about withholding on transfers to foreign accounts
• Tighten rules and penalties with regard to foreign trusts, including rules to determine whether distributions from foreign trusts are going to U.S. beneficiaries and reporting requirements on U.S. transfers to foreign trusts
• Provides that U.S. dividend payments received by foreign persons are treated as dividends even when structured as another type of distribution in an effort to avoid U.S. taxes
The nonpartisan Joint Committee on Taxation estimates the Foreign Account Tax Compliance Act would prevent U.S. individuals from evading $8.5 billion in U.S. tax over the next ten years, according to the House Ways & Means Committee.
“This bill offers foreign banks a simple choice – if you wish to access our capital markets, you have to report on U.S. account holders,” said Rangel, in a statement posted on the committee’s homepage. “I am confident that most banks will do the right thing and help to make bank secrecy practices a thing of the past.”
President Obama recently voiced his support for the proposed legislation. “Shortly after taking office, I laid out a set of proposals to crack down on illegal overseas tax evasion. The legislation introduced today would fulfill that promise, putting a stop to billions of dollars worth of abuses,” Obama said in a statement.
Following its introduction, Treasury Secretary Tim Geithner also released a statement commending the aim of the bill. “The legislation introduced today by Chairman Rangel and Chairman Baucus follows through on the Administration’s commitment to combating offshore tax evasion and ensuring a level playing field… This legislation will reduce the amount of taxes lost through the illegal use of hidden accounts and is the next step in making sure that everyone pays their fair share,” he said.
Demand Surges for International Tax Expertise
The increased government scrutiny of international tax issues is expected to trigger a surge in demand for international tax expertise. As the government hones in on tax loopholes and offshore tax havens, accountings firms must staff up with in-house expertise or strategic partnerships with international expertise, according to the Denver Business Journal.
“Most of the legislation or proposed legislation, like these two bills, are chalk full of international stuff, which means firms that provide international service will continue to hire new resources into their international tax practice in order to keep up with the changing rules and how they apply to their clients,” the report quotes Barber as saying.
“If that legislation does happen to pass, we’re going to need to hire additional resources, just like every other firm that has an international tax practice just because it’s going to be the biggest international tax bill we’ve had in a very, very, very long time,” Barber added.
The legislation could pass this year, according to Select Revenue Measures Subcommittee Chairman Richard E. Neal (D-MA). In a statement at a hearing on foreign bank account reporting, Neal concluded, “This legislation casts a wide net in search of undisclosed accounts and hidden income. It is carefully balanced, and as we will hear from one foreign bank today, it is actually supported by one who will bear the brunt of this new disclosure… The American boxer Joe Louis once told an opponent who proceeded to outrun him for 12 rounds, ‘You can run, but you can’t hide.’ Louis knocked him out in the 13th round. I believe we are entering that 13th round and it will not be long before those individuals seeking to hide money overseas will be caught. This bill could be enacted by year end.”