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European states may bring in their own version of FATCA

Banks street in Downtown Beirut, Tuesday, Aug. 26, 2014. (The Daily Star/Hasan Shaaban)

BEIRUT: Some bankers have said that European states are expected to follow the example of the United States and ask their citizens abroad to disclose their bank accounts to European financial authorities in a bid to combat tax evasion.

“It’s not official yet but we expect some European countries to adopt similar measures to the United States concerning the bank accounts of their citizens abroad and if this happens then Lebanese banks will fully comply with these measures,” the banker told The Daily Star on condition of anonymity.

On the first of July of this year, Lebanon became one of the first countries in the world to fully comply with the Foreign Account Tax Compliance Act, which requires American citizens, including individuals who live outside the United States, to report their financial accounts held outside of the United States, and requires foreign financial institutions to give the Internal Revenue Service information about their U.S. clients.

Congress enacted FATCA to make it more difficult for U.S. taxpayers to conceal assets held in offshore accounts and shell corporations.

Other bankers said they had not received any notification from the Central Bank that the European Union was about to hammer out their own version of FATCA.

Lebanese banks, which are the backbone of the Lebanese economy, have also fully cooperated with Lebanon’s Central Bank and Special Investigation Commission to crack down on money laundering and terrorist funding.

Observers believe that banks have no interest in defying or challenging any U.S. and European financial resolutions, because they realize the price for not complying is too high and could seriously damage the thriving banking sector.

The chairman and general manager of Jammal Trust Bank Anwar Jammal believes that the Europeans or some of the European countries are assessing the FATCA and Internal Revenue Service legislation in order to come up with their own version of the law.

“I expect the European version to be more draconian than FATCA. We have not been informed when the Europeans will take this step but I expect it could be at the end of this year or 2015. The Europeans are studying all the loopholes in FATCA so they can produce their own version,” Jammal said.

There are no official figures on the number of citizens who are holding American and European passports in Lebanon, but some independent sources estimate that there may be tens of thousands.

Local banks in general, and the Central Bank in particular, are keen to preserve the cherished banking secrecy law. Bankers vehemently denied some media reports that FATCA and other similar measures would eventually lead to the removal of the banking secrecy law.

“FATCA and other measures have no impact on the banking secrecy in Lebanon. Only those who have American passports will have to report to the U.S. Treasury or IRS if the latter requested the Lebanese banks to send their files,” one banker said.

Bankers stressed that FATCA is not optional, because the price Lebanese banks would pay for failure to comply is too high and no one is willing to take this risk.

“The whole world is complying. The cost of FATCA worldwide is between $4 and $5 billion. We have allocated the funds and mobilized the resources for this purpose alone,” a banker said. “The Europeans will come on board as well, this is only a matter of time.”

Bankers say that the number of accounts held by American and European nationals in Lebanon is very small in comparison to the total number of accounts.

Jammal said no bank was willing to challenge FATCA for the sake of few accounts.

“Most of the accounts in my bank are small and medium size and I don’t have a client with a U.S. passport who has large sum of money. No bank is unwilling to report the accounts of American citizens, because the fines we will pay are huge and in the millions of dollars,” he added.

Insiders and some banks said that very few Lebanese with U.S. passports had abandoned their citizenships in order to avoid paying taxes to the IRS.

“Even if a citizen decided to drop his passport, the IRS will still open his file in the past five years to check if he paid all his taxes to the authorities,” Jammal said.

 
A version of this article appeared in the print edition of The Daily Star on August 27, 2014, on page 5.

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Summary

Some bankers have said that European states are expected to follow the example of the United States and ask their citizens abroad to disclose their bank accounts to European financial authorities in a bid to combat tax evasion.

On the first of July of this year, Lebanon became one of the first countries in the world to fully comply with the Foreign Account Tax Compliance Act, which requires American citizens, including individuals who live outside the United States, to report their financial accounts held outside of the United States, and requires foreign financial institutions to give the Internal Revenue Service information about their U.S. clients.

Bankers stressed that FATCA is not optional, because the price Lebanese banks would pay for failure to comply is too high and no one is willing to take this risk.

Jammal said no bank was willing to challenge FATCA for the sake of few accounts.


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