Will the United States become the world's largest offshore financial centre?

In 2015, the United States (US) began receiving information on foreign bank accounts held by its nationals, as required under the Foreign Account Tax Compliance Act (FATCA), adopted in 2010.

In 2017, the Multilateral Competent Authority Agreement (MCAA), obliging banks, brokerages, investment bodies and insurance companies in signatory countries to provide local tax authorities with bank account information pertaining to non-residents, comes into effect. The MCAA has over 100 signatory countries, including traditional tax havens such as the British Virgin Islands and the Isle of Man, but does not include the US.

This brings up an unusual situation – the United States is asking for information on its citizens’ accounts in Europe, but is not providing them kind of data it is asking for. As such, the US can be an offshore financial centre for European nationals who do not want to declare their foreign bank accounts to tax authorities back home.

In 2015, the US ranked third in the Tax Justice Network's Financial Secrecy Index, which ranked countries based on 15 criteria. For instance, the US does not participate in the international Financial Information eXchange (FIX) protocol, store the data on company owners in public registers or restrict the activities of segregated portfolio companies (one of the forms of offshore business organisation). Other countries in the index’s top 10 have since become signatories to the MCAA.

Investors are already taking advantage of this loophole – according to a survey by Tranio and Adam Smith Conferences, 28% of Russian nationals transferring their assets to jurisdictions outside the CRS MCAA are choosing the US.

According to lawyer at DS Law and Tranio partner Denis Zaytsev, the US is an attractive location as it offers a range of benefits for legal tax optimisation (e.g. the generous tax benefits in Delaware) and the convenient conduct of business (pass-through taxation regime, clear tax administration mechanism).

Yulia Kozhevnikova, Tranio