With the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA) several tax authorities around the world participate in an automatic exchange of information. This information exchange relates to financial accounts of individuals and companies. In an effort to fight tax evasion, participating financial institutions are required to share account balances and other information for reportable accounts with the local tax authorities of the country of residence of the controlling persons.
The United States requires its tax payers to declare their foreign financial holdings to the IRS and FinCEN. As a control mechanism, US Federal Law dictates foreign financial institutions to report holdings of US citizens to the US Treasury. The IRS can impose penalties on individuals and financial institutions for failure to comply with the Act.
CRS and FATCA are important for domestic tax authorities. Therefore, several participating countries have introduced ‘whistleblower’ programs where suspicious individuals can be tipped off. The result is that the risk for beneficial ownership of offshore companies that do not declare their financial holdings is versatile. As a response, these beneficiaries should avoid entering the danger zone where tax authorities scrutinize ones financial background and potentially impose substantial penalties.