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Trojan transparency

A global financial transparency drive led by the most powerful nations could be the final nail in the trusts coffin, warns Filippo Noseda

14 March 2016

As the world came to terms with the credit crunch in 2007/08, the United States became intent on putting an end to banking secrecy. This culminated in the enactment of the Foreign Accounts Tax Compliance Act (FATCA). This seeks to eradicate tax evasion through an information reporting system enforced, through a 30 per cent withholding tax on US-source income for non-compliance.

In order to avoid the 30 per cent withholding tax, foreign financial institutions must register with the Internal Revenue Service (IRS) and undertake to report any financial account held both directly and through 'foreign entities' (such as companies, partnerships or trusts) by a US taxpayer.

The U.S. tax rules are very complex, but the key point is that there is a direct correlation between reporting under FATCA and a settlor's or beneficiary's U.S. tax liability. All that FATCA seeks to do is...

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