Enhanced IRS FATCA Scrutiny Causes Mexican Investors’ Concern

MIAMI, FL / ACCESSWIRE / November 29, 2019 / In May 2019, the U.S. Internal Revenue Service (IRS) issued new regulations relating to the Foreign Account Tax Compliance Act (or FATCA). FATCA "requires that foreign financial Institutions and certain other non-financial foreign entities report on the foreign assets held by their U.S. account holders".

As many Mexican investors (many of whom belong to Mexico City's prominent Jewish community) have assets and investments in the U.S., this causes major concerns in Mexico. At present, the Model 1 IGA jurisdictions do not include Mexico, but many experts believe the two countries intend to extend it to Mexico in the foreseeable future.

Insiders claim the Trump administration already considers implementing new regulations which could require Mexican investors to meet stricter FATCA compliance or even disclose Mexican-held assets to the Mexican IRS, called SAT. If the United States announced such regulations, they could soon be adopted by other countries which are under direct U.S. influence, such as Israel.

Israel has long been an easy and convenient destination for Mexican investments, especially by the wealthy Jewish community of Mexico City. Mexican investors are deeply involved in major deals, both in real estate and tech, in Israel. One of these investors is billionaire Carlos Slim, who reportedly came to Israel in 2014 to explore investments. Under President Obrador, many have wondered if the "golden age" of Israel-Mexico ties would come to an end.

Israel joined FATCA in June 2014, "pledging that the Israel Tax Authority would share the information it held about U.S. citizens" with U.S. authorities. These collaborations between governments are meant to prevent tax evasion by investors who keep their fortune overseas to avoid taxation in their home country. Such measures should not come as a surprise to veteran investors and their advisors; in 2010, FATCA imposed a bilateral data transfer between U.S. citizens who are either clients of non-US banks or investors in non-US financial institutions, and the IRS.

"This data transfer includes personal information about investors as well as information related to the investor's bank accounts, ultimate beneficial ownership (UBS), amount of financial assets, and yearly revenues. Thanks to the IGA, the IRS has been able to integrate these rules into the local law of the States adopting FATCA norms. In this way, for the countries which opt for IGA model 1, the model most frequently adopted by third countries, an information transfer of the US investor's data occurs firstly from the financial institution or bank to his tax administration and secondly, from the tax administration to IRS," wrote Antoine Dupuis and Gilles Sturbois in December 2018.

Experts believe there are already clear indications of data transfer concerning ultimate beneficial ownership between Mexico, Israel and the United States, and say banks today look for the origin of funds, sometimes ignoring whatever source or nationality the account holder had declared. International banks are now required to report these funds to both the declared country of origin and the suspected country of origin.

"The speed at which world has gone from bilateral exchange on request to a multilateral AEoI has been breakneck, and even more so if we consider that this development has also brought an end to banking secrecy. The rapid pace of change demonstrates tax administrations' ultimate goal to put a stop to perceived international tax fraud," add Dupuis and Sturbois.

A recent precedent comes from Brazil; Brazil has entered into double taxation conventions and treaties for exchange of tax information (including the Foreign Account Tax Compliance Act (FATCA) and the OECD's Common Reporting Standard (CRS)) in 2015. Based on article 199 of the Brazilian National Code (CTN), the South American Federal Republic may cooperate in mutual exchange of information and assistance, which is has in fact been doing since September 2018. In June 2019, Brazil also signed a tax treaty with Uruguay, which forces companies to reveal their structures, citing ineffetice taxation.

What does the future hold? Hard to tell. Some place capital flight from Mexico to the U.S. at $217 billion, a number high enough to justify a mutual decision by the U.S. and Mexico to enforce FATCA's Model 1 IGA on Mexico in the near future. While in the past, U.S. administrations turned a blind eye to Mexican capital in the U.S., new restrictions and regulations might herald a new, dark age for Mexican foreign investors.

CONTACT:

Scott Cowen
scott.cowen.reporter@gmail.com

SOURCE: Scott Cowen Writes

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