Compass Money

Brazil and U.S. Sign Reciprocal, Automatic Tax Information Exchange Agreement

The IRS and the Brazilian tax authorities will soon begin collecting and exchanging information with respect to certain types of investments to facilitate tax enforcement in both countries.  Brazil actually agreed earlier in principle, but delayed signing the protocol until just recently for political reasons.  Starting next year, 2014 tax information will be exchanged automatically and includes the names and tax identification numbers of account holders, interest earned and income paid or credited to the account.


Tax Globalization is Here


Tax globalization spurred by the U.S. Foreign Account Tax Compliance Act or “FATCA” is pushing more and more countries and “offshore” jurisdictions to lift their bank secrecy laws and sign treaties that facilitate multilateral tax information exchange.  This is no longer just a matter of Swiss banks being forced to report Americans to the IRS.  Several developed and developing countries, including some in Latin America like Mexico, Colombia, Chile, Dominican Republic, Panama, Peru and most recently Brazil, are jumping on the “FATCA” bandwagon.  By adopting complimentary laws and signing Intergovernmental Agreements, those countries are similarly requesting that U.S. banks identify and report accounts held by their taxpayers as well.


FATCA Touches the Entire Offshore Ecosystem


In compliance with this increasingly interconnecting web of tax regulations, international banks are already scrambling to implement or improve their systems that verify the identity of an account’s Ultimate Beneficial Owner or “UBO” (i.e. the individual who the account really belongs to) and eventually report that information to all relevant tax authorities as appropriate.  But these new rules don’t just apply to banks; they also apply to businesses that sell offshore companies and trusts, and other service providers who stand between the account and the UBO.  Businesses like these have always been very careful to make clear to their customers that they are not law firms and do not provide any U.S. tax or legal advice, such as interpreting how U.S. tax laws like FATCA apply to a particular situation.  These businesses normally disclaim any U.S. tax or legal advice, such as whether a person or entity is considered a tax resident according to U.S. income or estate tax law, the U.S. tax implications of non-U.S. Companies or Trusts having U.S. shareholders or beneficiaries, the appropriate legal or tax structure for a U.S. LLC or Corporation, legal and tax issues regarding titling, purchasing or selling U.S. real property, U.S. asset protection law, U.S. trust law, what the U.S. tax and legal implications are when a UBO finally passes away owning a Company or Trust they helped create, how and when U.S. law can apply to persons or things outside the U.S., the FATCA classification of a legal structure, how to complete the U.S. tax form W-8, etc., etc.  UBO’s are instead referred to a U.S. international tax attorney for a confidential and privileged analysis of what the UBO can do to meet their legal obligations with maximum tax efficiency. 


What Does FATCA Mean for U.S.-Connected Brazilian Families?


Now more than ever, Brazilian families with U.S. investments or a member who is or might become a U.S. tax resident, and who have not received current legal advice regarding their wealth from an experienced, independent and practicing U.S. international tax attorney, should act quickly to ensure that their wealth is properly structured for maximum tax efficiency and legal advantage.  U.S. citizens and tax residents, living in the U.S. or abroad, who have accidentally or intentionally failed to report income, bank accounts, corporations, trusts or other assets outside the U.S. are increasingly at risk of being detected, fined and in some cases even incarcerated and deported.


When given the opportunity, we prefer to help our clients proactively arrange their affairs to reduce their tax burden to the legal minimum.  Anyone unsure whether they have fulfilled all their tax and information reporting obligations should seek the privileged advice of a U.S. tax attorney as soon as possible to determine the safest and most economical way of resolving their non-compliance prior to detection.


Have questions? Contact us.