Norway is catching more tax dodgers abroad with fresh help from the U.S. legal system.
Federal courts in six states have allowed the Internal Revenue Service to issue summonses to U.S. banks at the request of the Norwegian government, and the banks may now have to give up information on people who used some kinds of credit and debit cards, Bloomberg BNA reported, citing the Justice Department.
The development signals increasing cooperation between governments to stop offshore tax evasion. The cases show that the U.S. is willing to reciprocate as officials escalate efforts to find U.S. taxpayers hiding money overseas with the cooperation of other governments, said Kevin Packman, an attorney with Holland & Knight LLP in Miami.
“It’s highly noteworthy,” Packman said. U.S. tax officials are sending the message that “it’s not a one-way street, and we’ll help you too.”
Countries are increasingly working to stop tax evasion together. At a June meeting of the Group of 8 nations, leaders of the world’s wealthiest economies including President Obama announced a commitment to tackle tax evasion by multinational companies. The G-8 leaders said one goal would be to “share information automatically to fight the scourge of tax evasion.”
The U.S. Foreign Account Tax Compliance Act, known as Fatca, may lead to dozens of agreements between countries to exchange information on bank accounts. The law requires foreign banks to turn over information to the IRS about their U.S.-owned accounts or potentially face withholding taxes.
Under the aegis of Fatca, the U.S. has signed at least nine agreements for government-to-government information exchange -- a phenomenon that is gaining momentum in the world of tax administration. Negotiations are in the works with as many as 80 other nations.
Another source of information is a U.S. program where taxpayers volunteer information about offshore accounts in exchange for a set penalty and the chance to avoid criminal prosecution. That has yielded data not just on individuals, but on the banks and promoters who help in the avoidance.
The Justice Department said July 29 that courts in Minnesota, Texas, Pennsylvania, Oklahoma, Virginia and California have approved seven of 10 government petitions to let the IRS seek the information in court at the request of the Norwegian government. Three are still pending, in California, Mississippi and New Hampshire.
A total of 18 U.S. financial institutions are identified in the government’s filings, initiated at the request of the Norwegian government under a treaty between Norway and the U.S., the Justice Department said. The filings don’t allege that the banks have violated any U.S. laws, the department said.
The development is significant because the U.S. government went to federal court in eight states at Norway’s request, practitioners told BNA.
In one example of financial institutions that could be facing scrutiny, the U.S. District Court for the Western District of Pennsylvania said on July 22 that the IRS can issue summonses to PNC Bank N.A. and RBS Citizens N.A. In a memorandum filed in the Pennsylvania court, the U.S. called the suit “out of the ordinary” because it was done at Norway’s request, and pointed out that a U.S.-Norway treaty allows it.
“It’s fairly unusual that you see this, but it’s becoming more common as you see governments cooperate,” said John Harrington, a partner with Dentons in Washington.
Cross-border information exchange will become more common under Fatca, and Norway has signed an intergovernmental agreement under that act, Harrington said.
“These are the kinds of requests that will ultimately be supplanted by automatic exchange of information,” Harrington said.
Norwegian authorities described an arrangement using payment cards that it said has already generated evidence of extensive tax avoidance in Norway, according to a declaration accompanying the petition from Michael Danilack, a deputy commissioner at the IRS said.
“The Department of Justice and IRS are committed to working with our treaty partners to fight tax evasion wherever it occurs,” Kathryn Keneally, assistant attorney general for the Justice Department’s tax division, said in the agency’s July 29 statement. “All taxpayers should know that our efforts in this area are global, coordinated and will continue.”