U.S. Announces Greater Scrutiny of Foreign-Owned LLCs: Is Peer Pressure a Motivator?

By:
Alicea Castellanos, CPA, TEP, N.P. and Jack R. Brister, TEP
Published Date:
Aug 1, 2016

The United States and other jurisdictions have spent a decade trying to identify owners of foreign corporations. Now, a five-year-old report by the Organization for Economic Cooperation and Development (OECD) might have served as an impetus for a U.S. proposal regarding disclosure requirements for limited liability companies (LLCs).

Announced by the Treasury Department on March 30, the upcoming proposed rules would treat foreign-owned, single-member LLCs as corporations—making them subject to beneficial ownership disclosure requirements. In effect, foreign-owned LLCs would have to obtain a tax identification number and list foreign ownership. The proposed rules also include significant penalties for continued noncompliance. Information regarding foreign beneficial ownership will likely be shared with foreign tax authorities.

In the 2011 peer-reviewed report by the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes, the Financial Action Task Force found that the United States was noncompliant on the issue of beneficial ownership. The review determined that peer jurisdictions were concerned with the legal framework surrounding the availability of ownership information, including those of Delaware entities and LLCs. There was also concern about the IRS’s limited ability to obtain the required information in cases where the individual is not in the United States.

Some observers say the idea behind the new U.S. proposal is a quid pro quo move, given that OECD members had expressed concerns that they were being asked to be more transparent in giving up corporate information to U.S. authorities without any reciprocity. The idea of peer pressure being the main stimulant behind the proposed change makes sense, as it’s likely that the new U.S. reporting rules will enable peer jurisdictions to raise tax revenues for themselves rather than enrich the U.S. Treasury.

The United States has been making strides in improving transparency on the tax side, particularly in the exchange of data between tax administrations. Progress has been furthered by recent IRS efforts regarding foreign accounts, FATCA and FBARs, which aim to remove some of the opacity relating to corporate disclosure; however, global concern over foreign investors and foreign ownership continues—making it increasingly important for clients to work with their advisors to ensure full compliance to avoid penalties or other actions from the U.S. Department of Justice.


This article originally appeared in the April 2016 issue of The International Wealth Tax Advisor. Copyright, International Wealth Tax Advisors LLC, 2016. Reprinted with permission.


Alicea Castellanos, CPA, TEP, N.P., has more than 15 years of experience. She specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures, which include non-U.S. trusts, estates, and foundations that have a U.S. connection and executives living and working abroad. Alicea also specializes in non-U.S. persons investing in U.S. real property and other U.S. assets, pre-immigration planning, U.S. expatriation matters, U.S. persons in receipt of gifts and inheritances from non-U.S. persons, non-U.S. account and asset reporting, offshore voluntary disclosures, FATCA registration, and non-U.S. companies seeking to do business in the United States. Alicea has been published and has spoken at numerous events on U.S. cross border tax matters. She can be reached at acastellanos@iwtas.com.

Jack R. Brister, TEP, has more than 25 years of experience. He specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures, which include non-U.S. trusts, estates and civil law foundations that have a U.S. connection, and non-U.S. companies seeking to do business in the United States. Jack also specializes in non-U.S. persons investing in U.S. real property and other U.S. assets, pre-immigration planning, U.S. expatriation matters, U.S. persons in receipt of gifts and inheritances from non-U.S. persons, non-U.S. account and asset reporting, offshore voluntary disclosures, FATCA registration and compliance (W-8BEN-E and Form 8966) and executives working and living abroad. He can be reached at jbrister@iwtas.com.

 
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