What’s all this commotion about UBS? Well if you’ve been out of the loop or simply hiding your head in the sand every time you hear those initials, then it is now officially time to wake up.
First, a bit of background. Around a year ago, a former UBS banker named Bradley Birkenfeld came forward to report illegal tactics by the giant Swiss Bank. UBS was luring big money investors to deposit undeclared income in their bank with promises of the famous Swiss secrecy laws. Birkenfeld was a party to a deposit of $200 million by U.S. billionaire Igor Olenicoff, who was convicted, and required to pay $53 million in taxes and penalties.
The IRS is looking everywhere for offshore bank accounts
The IRS pulled a bit more on the thread. They discovered that a special office over at UBS would regularly make trips to North America to lure big time investors. A part of this office was known as the “Canada Desk”. It is estimated that Canadian investors have deposits of more than $5 billion at UBS.
Why all the Fuss This Week?
The IRS has been trying to get UBS to disclose more names and until last week, has been stonewalled by the bank, who claims it would run afoul of Swiss secrecy laws. On August 19, the Swiss government agreed to loosen those laws in order to cooperate with the IRS. As a result, UBS is now required to hand the names of 4,450 of its biggest U.S. depositors to the IRS.
And it’s only the beginning. In IRS commissioner Doug Shulman’s words “This issue is not going away, and people hiding assets and income offshore will find themselves increasingly at risk due to our efforts in this area.”
What about us poor folk north of the border?
The CRA is chasing after this gravy train like a dog after a truckload of Gravy Train. Revenue Minister Jean-Pierre Blackburn is in a tizzy over Canada’s weak enforcement laws and is recommending major changes to the law to help trace the movement of funds offshore. Lawyers for the CRA are reportedly heading off to Switzerland for “discussions” with UBS officials.
From a Canadian perspective none of this seems to have hit home just yet. To date only seven people have come forward to report their offshore activities. But if more taxpayers intend to do so, they shouldn’t wait too long. The voluntary disclosures program in Canada is designed to give some relief to taxpayers who come forward prior to being investigated. So, if a name is divulged to the CRA and an investigation ensues, no relief will be available.
What kinds of consequences do Canadians face? Tax evasion can come with a two-year prison sentence and fines of more than 50 percent of the tax owing, plus interest compounded daily. Canadian taxpayers are required each year to report their offshore deposits if they exceed $100,000. Failure to file this form can lead to fines of up to $24,000 per year.
Americans have a quick decision to make. The IRS has set up a special framework for voluntary disclosures relating to offshore activities, but this framework has a short life span. If they do not come forward by September 23, taxpayers may face the full force of the law, including possible criminal charges. Here in Canada, the problem is not so urgent, but now would seem to be a good time to think about getting your ducks in a row.
Oh, and one more thing – if you are a professional advisor, you should be aware that our friend, Mr. Birkenfeld was sentenced to 3 years in prison for setting his client up with his UBS account. So don’t say I didn’t warn you.