Congress and the IRS Tell 500,000 Foreign Financial Institutions to “Get Lost”

Mark Nestmann
Lew Rockwell

Back in March, President Obama signed the largest-ever expansion of offshore disclosure requirements in U.S. history.

These provisions were neatly tucked into the “HIRE Act,” a bill designed to provide incentives for businesses to hire new employees. I wrote about it here and here.

For instance, once the offshore reporting provisions of the HIRE Act come into effect on Jan. 1, 2011, a single investment in an offshore mutual fund through a bank account held by an offshore LLC will require that you file seven separate reporting forms. (I discussed this and other provisions of the HIRE Act in my presentations last week at The Sovereign Society’s Offshore Advantage conference in Cabo San Lucas, Mexico.)

However, the longer-term impact of the HIRE Act is even greater. The law imposes a 30% withholding tax on certain types of U.S-source income and gross sales proceeds to foreign financial institutions (FFIs) and many non-financial foreign entities (NFFE). (Broadly speaking, a NFFE is any non-U.S. entity that is not a FFI.) The only way to avoid the tax is for the FFI or a “withholding agent” for the FNFE to enter into a broad-based information reporting agreement with the IRS. These rules become effective in 2013.

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