Foreign Investors Will Not Be Deterred By Interest Reporting Rules, Says Treasury

by Leroy Baker, Tax-News.com, New York

06 January 2004

A proposal that would require US banks to report the interest income paid to non-resident aliens was defended by the Treasury last week after attracting criticism from Senators who fear the measure will lead to capital flight from American banks.

"The proposed regulation, if finalized, would reduce opportunities for offshore tax avoidance or tax evasion by facilitating the exchange of information important to tax compliance," said Assistant Secretary for Tax Policy Pamela Olson in response to a written protest from ten Senators calling for the proposal to be dropped.

Olson remarked that it is "more important today than ever that no safe haven exist anywhere in the world for funds associated with illicit activities" adding that greater transparency is a must if financial crime is to be prevented.

She pointed to the success of similar measures implemented in Canada and argued that "the many attributes of the U.S. banking system, rather than opportunities for tax avoidance, are the motivating factors behind nonresidents' deposits in U.S. banks."

In a letter to Treasury Secretary John Snow in September last year, a coalition of Senators including Robert Bennett, R-Utah, Wayne Allard, R-Colo., Jim Bunning, R-Ky., Mike Crapo, R-Idaho, and Elizabeth Dole, R-N.C., warned the regulation would drive out foreign investment and “wreak havoc” on the recovering economy.

Recommended