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Can someone explain how people evade(d) taxes using swiss accounts?
Old 05-20-2014, 10:26 AM   #1
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Can someone explain how people evade(d) taxes using swiss accounts?

This morning on NPR they were talking about some 2.5B fines on the swiss bank. I guess I'm a dummy and don't understand how having a swiss account can help people evade taxes. Unless these people have income/businesses elsewhere in the world that they simply keep in the foreign bank accounts. Is that what this is all about? I didn't even know you'd have to pay taxes in the US if you earned income elsewhere because I thought you paid taxes where you earn income.
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Old 05-20-2014, 10:36 AM   #2
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Prior cases that have been resolved have been about US taxpayers unlawfully hiding cash income, not paying any taxes, then moving the money to overseas banks without reporting it to the US Treasury.
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Old 05-20-2014, 10:36 AM   #3
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Best to Google such a thing to find out how it worked.

Swiss Banks React to FACTA, Tell Americans to Close Accounts | TIME.com
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Old 05-20-2014, 10:57 AM   #4
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Originally Posted by dvalley View Post
This morning on NPR they were talking about some 2.5B fines on the swiss bank. I guess I'm a dummy and don't understand how having a swiss account can help people evade taxes. Unless these people have income/businesses elsewhere in the world that they simply keep in the foreign bank accounts. Is that what this is all about? I didn't even know you'd have to pay taxes in the US if you earned income elsewhere because I thought you paid taxes where you earn income.
The US taxes all income for individuals and US corporations on a world-wide basis. In the case of corporations, the income is only taxed if the money is brought into the US.

The US is the only country on the planet that does this. A US citizen working in another country has an exclusion on a small amount of income but then normal tax rates kick in. Other countries do not tax their citizens for out-of-country earned income but some treat investment income differently especially if investments are inside the country.

Corporations are rewarded by taking this foreign earned income and reinvesting it outside the US which further increases their foreign income. This lets them avoid the highest corporate income tax (US) in the world. This creates employment opportunities for international tax accountants and lawyers along with encouraging US corporations to purchase foreign firms so that they can readily move their headquarters out of the US.

Foreign firms and divisions of US companies (not being stupid) arrange their transfer costs so that most, if not all, of their US derived income is actually booked in another country. I have first hand experience in this practice.
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Old 05-20-2014, 11:08 AM   #5
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Thanks for helping me understand all this. I also read the article Audrey posted, very interesting.

So this made me wonder about something else. Is it legal for an individual to take large sums of money out of the US or bring into the US? An example that comes to mind would be let's say I have $1M in my taxable accounts. I decide I want to live in Germany and move my money there. Or say I had parents who lived in Germany and I inherit their assets that I want to move into my US accounts. In both of these cases can you just do a bank transfer? On the customs form you have to declare any money or gifts exceeding a certain amount ($10k I believe) when you fly back to the US.
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Old 05-20-2014, 11:16 AM   #6
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Originally Posted by dvalley View Post
Thanks for helping me understand all this. I also read the article Audrey posted, very interesting.

So this made me wonder about something else. Is it legal for an individual to take large sums of money out of the US or bring into the US? An example that comes to mind would be let's say I have $1M in my taxable accounts. I decide I want to live in Germany and move my money there. Or say I had parents who lived in Germany and I inherit their assets that I want to move into my US accounts. In both of these cases can you just do a bank transfer? On the customs form you have to declare any money or gifts exceeding a certain amount ($10k I believe) when you fly back to the US.
There are limits to taking cash but there is nothing illegal about a US citizen moving money electronically or with a check to/from a foreign bank account. That foreign account just has to be disclosed when doing your taxes.

Unfortunately, the US has imposed draconian (IMHO) reporting requirements for foreign banks that have US citizens as account holders. If they don't meet these requirements, the banks can lose their ability to function with/in the US. This has led many banks to cancel the accounts of US citizens and refuse to open any new accounts.
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Old 05-20-2014, 11:21 AM   #7
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The US taxes all income for individuals and US corporations on a world-wide basis. In the case of corporations, the income is only taxed if the money is brought into the US.

The US is the only country on the planet that does this. A US citizen working in another country has an exclusion on a small amount of income but then normal tax rates kick in. Other countries do not tax their citizens for out-of-country earned income but some treat investment income differently especially if investments are inside the country.

Corporations are rewarded by taking this foreign earned income and reinvesting it outside the US which further increases their foreign income. This lets them avoid the highest corporate income tax (US) in the world. This creates employment opportunities for international tax accountants and lawyers along with encouraging US corporations to purchase foreign firms so that they can readily move their headquarters out of the US.

Foreign firms and divisions of US companies (not being stupid) arrange their transfer costs so that most, if not all, of their US derived income is actually booked in another country. I have first hand experience in this practice.
+1

Plenty of countries tax their residents on their worldwide income regardless of where it is earned, but the USA and Eritrea are the only countries in the world who also taxes its citizens on their worldwide income regardless of where they actually live. Plenty of "accidental US citizens" get caught in the net. (Those born here but moved away as children)

This year the USA has switched how individuals' foreign bank accounts have to be reported. It used to be a form one completed and mailed in if you had accounts totaling more than $10k but now it has to be done on-line, but the site where one makes the report is the Financial Crimes Enforcement Network.

It is easy to use but is not very welcoming.
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Old 05-20-2014, 11:23 AM   #8
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There is no limit to carrying cash in or out of the US. If the amount exceeds $10K you need to file a "Report of International Transportation of Currency and Monetary Instruments FinCEN 105 " Bank transfers are reported by the institutions.

Other countries may have limits on cash or asset transfers.
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Old 05-20-2014, 11:33 AM   #9
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+1

Plenty of countries tax their residents on their worldwide income regardless of where it is earned, but the USA and Eritrea are the only countries in the world who also taxes its citizens on their worldwide income regardless of where they actually live. .
Which then leads to people renouncing their US citizenship as noted in a Forbes article earlier this year...up 221%.

Last week there was also an article elsewhere on how London has the highest concentration of billionaires who've moved there (at least on paper) to take advantage of relatively benign tax treatment.

I always chuckle when someone gets up and claims that "we're gonna get the rich to pay more...". When you have 'resources' there's always a work-around!
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Old 05-20-2014, 12:06 PM   #10
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On the one hand I get how paying taxes helps the country and pays for many programs but on the other hand it's amazing how far our govt (really our fellow US citizens who come up with these) will go to controls our money and make sure we pay up for every new taxation they come up with.

Also on NPR they were talking about how poor people are serving jail time for minor crimes if they can't pay fines. Again on the one hand I get that someone committed a crime and they should be punished but on the other hand some of the examples of the crimes committed were pretty benign yet the penalties were hefty - a good source of income for the counties. If people couldn't pay them then the court would put them in jail, include additional fines and interest of 10-12%. There was a case of this 27yo who served in Iraq, came back and couldn't find a job and was homeless living with friends. While at the bottom of his life one day he decided to go to a bar with friends, got drunk and then decided to break a window of an abandoned warehouse to sleep inside. He was fined $50, he only had $25. The court tossed him in jail for 22 days while the judge said something like 'can't you do hussling legally or find cans in the garbage or something'. He ended up finding a job after his time and paid the fines which were now up to $2k or so because of the various fees like 'room and board' and administrative fees while jail. I was thinking to myself how everyone just wants a cut of your money these days; fees, fines, taxes, cost of repairs etc where does it end?
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Old 05-20-2014, 12:23 PM   #11
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The issue with the Swiss banks predates FATCA. UBS was busted for actions a decade ago for not just allowing it's American customers to hide money from US Tax reporting - but activtely advising and facilitating it. In other words - they were active participants in the illegal tax evasion. The Credit Suisse case appears to be similar. If they weren't large banks, people would be sent to jail. But this is a case of "too big to jail".

The threat the US government used to bring these banks into compliance is the ability to operate within the US. Both UBS and Credit Suisse have US operations.

For US citizens working/living abroad the first $100k or so of income earned abroad is exempt. (It was $97.6k last year but is indexed for inflation.) My sister was an expat for many years. She had to manage her trips to the US to maintain her expat status - but she saved a boatload in taxes since at the time, Japan did not charge her taxes from her American employer.

At this point it appears only Switzerland is having conniptions over the FATCA reporting. I have American friends who live in Spain, and other friends who live in Italy... They are able to bank without issue - despite their US citizenship.

Another article on countries working with the US government on FATCA
Incredibly, 48 Nations Embrace FATCA To Reveal U.S. Depositors - Forbes
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Old 05-20-2014, 12:37 PM   #12
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+1

Plenty of countries tax their residents on their worldwide income regardless of where it is earned, but the USA and Eritrea are the only countries in the world who also taxes its citizens on their worldwide income regardless of where they actually live.
Eritrea! Wow, learned something today. I try to keep up on world geography but somehow this country evaded my detection.

Glad the USA has a buddy in our worldwide tax madness.
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Old 05-20-2014, 12:43 PM   #13
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Here's what I don't get: For a couple of hundred years, Swiss banks allowed/offered discrete accounts which were numbered instead of named.

As a US taxpayer, it was up to you to acknowledge if you had such an account on your tax forms.

What I don't understand how the US can then fine a foreign entity for doing something they've been doing for centuries, even before there was a US income tax.

Where do we get off in telling another country how to do their banking?
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Old 05-20-2014, 12:46 PM   #14
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Originally Posted by dvalley View Post

Also on NPR they were talking about how poor people are serving jail time for minor crimes if they can't pay fines.
Yet, no one at Credit Suisse goes to jail or loses their job. Nor does anyone's compensation get clawed back! That rankles me no end.
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Old 05-20-2014, 12:50 PM   #15
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This thread was moved to the " FIRE related political topics" forum.
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Old 05-20-2014, 12:55 PM   #16
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Here's what I don't get: For a couple of hundred years, Swiss banks allowed/offered discrete accounts which were numbered instead of named.

As a US taxpayer, it was up to you to acknowledge if you had such an account on your tax forms.

What I don't understand how the US can then fine a foreign entity for doing something they've been doing for centuries, even before there was a US income tax.

Where do we get off in telling another country how to do their banking?
Actually one of the prior posts explained it clearly if the Swiss bank wishes to do business in the US or deal with any US based banks they must comply, if not then not. Of course that includes Visa and Mastercard among other things as well as American Express. So unless your a very small bank the costs of loosing access to the US financial system is higher than the cost of loosing a few clients.
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Old 05-21-2014, 11:23 PM   #17
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Originally Posted by Alan View Post
+1

Plenty of countries tax their residents on their worldwide income regardless of where it is earned, but the USA and Eritrea are the only countries in the world who also taxes its citizens on their worldwide income regardless of where they actually live. Plenty of "accidental US citizens" get caught in the net. (Those born here but moved away as children)
.
Residents, but not citizens, of a country being taxed by the country they are residing in for income earned outside that country? I didn't know this happened, what countries enforce this? I thought for the vast majority of countries (excluding the US), taxes are paid in the country of earnings.

I do not believe it it fair for the U.S. to tax its citizens on worldwide income because it puts American citizens at a disadvantage to citizens of other countries in being able to earn and save, for work down outside the country. I also don't see how the exit tax is fair. It's basically an inverse bribe to prevent people from leaving the country for voluntary reasons. And since taxes have to be paid on total net worth, even unrealized, if something is later sold there is a double taxation on it. They should not have to come up with deterrents for people to leave the country; if the country was being managed well people would not want to leave.
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Old 05-21-2014, 11:26 PM   #18
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Residents, but not citizens, of a country being taxed by the country they are residing in for income earned outside that country? I didn't know this happened, what countries enforce this? I thought for the vast majority of countries (excluding the US), taxes are paid in the country of earnings.
Under the residency based system you pay tax in your country of residence on worldwide income. But if your an expat, you pay tax where you work, not where you have citizenship.
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Old 05-22-2014, 10:46 AM   #19
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For those 'US Person' retirees living outside the US, having a Swiss bank account may not be the problem. There are other ways in which they may fall foul of US tax laws and subject themselves to committing tax evasion. For example, if they live in a country which offers financial benefits to the retired, many of those benefits (even if tax free in the country of residence) must be declared on a 1040 tax form. The benefits may include payments made to assist in the care of an elderly disabled person, for example. Note: it may be suggested by the more creative tax advisors that telling the IRS about benefits is 'optional'. While the wording in the US Code does specifically mention benefits from the US Federal Government and US states, it may not specifically mention benefits from foreign countries. Taking such a stance may be very risky if you are not a major international accounting firm.

As regards the Swiss situation, bear in mind the actions taken against the Swiss Financial Institutions come not from the IRS/Treasury, but instead come from the US Department of Justice. All FI's in Switzerland have become guilty by association due to UBS and Credit Suisse.

As regards FATCA, perhaps one of the best explanations of the 'why and how' comes not from the IRS or Americans living abroad, but from the foreign banks themselves. The following is an information clip (You Tube) from HypoVereinsbank in Germany. It contains some real subtleties, but does explain their (and all FI's around the world) sole reason for adhering to FATCA legislation, and of the many clips available is perhaps the most informative.

Moderators: This clip does contain a splash screen at the end advertising HypoVereinsbank. I hope you will forgive this as the information contained is one of the most accurate and concise explanations of the workings of FATCA from a banks perspective.



Another viewpoint concerning FATCA is from the academic perspective. The following clip is from a CBC (Canada) nationally televised segment during their nightly news show in January, 2014. The person interviewed is Professor Allison Christians. Allison Christians is the H. Heward Stikeman Chair in the Law of Taxation at the McGill University Faculty of Law, Montreal, Quebec, and is acknowledged as one of the worlds leading experts in international tax laws and treaties. She is discussing FATCA as it relates to Canada, but all the same issues mentioned apply equally to any other country in the world faced with implementing FATCA.



Any US Person retired, or contemplating retiring, in a foreign country should be aware that any bank account in that foreign country will now come under the scrutiny as explained above.
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Old 05-22-2014, 10:58 AM   #20
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Sounds a little like how Ohio does municipal income taxes.

Not all cities in Ohio have an income tax and the rates vary from town to town.

So you have to pay half of your municipal income taxes to the town you work in and half to the town you live in.

Luckily, I live in a no income tax township and used to work at home. (one big reason we live were we do...) And somehow we still have better services than some of the local towns - like much better snow removal than Columbus has.
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