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Bank Secrecy and Tax Havens

Bank Secrecy and Tax Havens. Hivi Faraj. Bank Secrecy and Tax Havens. Individuals and corporations evade taxes by setting up foreign accounts In countries where their financial information are protected by law E.g. Switzerland, Lebanon Cayman islands…etc. Foreign Tax Compliance Act.

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Bank Secrecy and Tax Havens

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  1. Bank Secrecy and Tax Havens HiviFaraj

  2. Bank Secrecy and Tax Havens • Individuals and corporations evade taxes by setting up foreign accounts • In countries where their financial information are protected by law • E.g. Switzerland, Lebanon Cayman islands…etc.

  3. Foreign Tax Compliance Act • Passed in 2010, expected to become operational in July, 2014 • Included in the Hire Act • Aims to combat bank privacy and tax evasion • Requires individuals (U.S. tax payers) to report all financial assets and foreign accounts • Foreign institutions must report all financial information of U.S clients to the U.S governments (IRS) • If they don’t, they risk 30 percent of income on American soil • E.g. trade securities, investments, financial assets, commodities • Withholding financial information can be costly • If they do: • Exempted from 30 percent tax • Recognized as FATCA compliant

  4. Pros and Cons • Pros: • encourages financial transparency • Prevents tax evasions and bank secrecy • Increases revenue for U.S Government • Tax all citizens equally regardless of location on all income earned • Requires bilateral agreements between U.S and FFIs and countries • Cons: • Lack of privacy • Substantial flow of Financial information • Discourage investment • Hurts U.S businesses abroad & U.S Financial market and economy • High cost of compliance with FATCA

  5. Policy Recommendation • Establishment of an international institution that oversee and makes the rules • More like UN but with more power to implement rules and regulations • All agree on equal terms and penalties • However, this brings forth the issue of sovereignty, which states will reject and who will join such organization? • Overall how effective can such organization become? Is it even possible?

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