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France and the United States Take On Tax Evasion

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Pierre Moscovici Photo: Flickr/jyc1

Pierre Moscovici
Photo: Flickr/jyc1

Washington and the Elysée have finally signed an agreement that will likely set a new global standard for controlling tax evasion.

On Thursday, November 14, French Minister of Finance Pierre Moscovici, and Charles Rivkin, the American ambassador to France, signed an agreement holding the French government accountable for reporting on tax evaders.

The agreement, when applied in France, will automate the exchange of tax information between the two countries. French banks and financial institutions will be required to report information about U.S. customers’ offshore accounts to the French government, which will then be transmitted to the IRS.

The “FATCA” – or Foreign Account Tax Compliance Act – was signed into law in the United States on March 18, 2010 and will go into effect next July.

The law will require foreign financial institutions to report information to the IRS regarding financial accounts held by U.S. taxpayers and foreign entities with substantial U.S. ownership interest. Disclosure will only be required if the accounts are worth more than $50,000 to the IRS.

In order to enable the sharing of information, foreign governments must sign intergovernmental agreements (IGAs), since account information sharing may be illegal in some foreign jurisdictions.

It is important to note that the agreement with France is reciprocal, thus requiring the IRS to send similar information about French account holders to the French government.

Washington is currently negotiating IGAs with more than 50 countries in addition to several financial institutions. With Moscovici’s signature, there are now ten countries having signed agreements – the United Kingdom, Mexico, Ireland, Switzerland, Germany, Denmark, Spain, Norway and Japan.

If a signatory institution or institution of a signatory country does not submit to the reporting obligation, it will be sanctioned by a tax increase of thirty percent on its revenue coming from American sources.

Developed countries could gain billions of euros yearly in tax revenue by targeting tax evasion. At the G20 summit in Saint Petersburg in October, the world’s major economies set a goal of instituting an automatic tax information exchange system for by 2015, at the latest. During this time, significant advances in the fight against tax evasion are expected.

According to Moscovici, the agreement represents the base for development of the automatic exchange of information at the international level. For Rivkin, it’s “a step forward in collaborating to fight against offshore tax evasion”.



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