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USA and the Common Reporting Standard (CRS): Consequences for LLC founders

USA and the Common Reporting Standard (CRS): Consequences for LLC founders

USA are not CRS participants

The USA have so far refused to comply with the Common Reporting Standard (CRS - automatic exchange of banking data) - a global agreement for the automatic exchange of tax data. This step has far-reaching consequences for company founders around the world who have a LLC (Limited Liability Company) in the United States.

What is the CRS?

The Common Reporting Standard is an agreement developed by the OECD that regulates the automatic exchange of financial and tax data between almost 100 countries. The aim is to effectively combat tax evasion and money laundering. Participating countries are obliged to obtain data on the assets and income of their foreign nationals from financial institutions and forward it to the respective home country. This is intended to prevent Citizens Park assets in tax havens.

Why didn't the USA join?

The United States has so far refused to participate in the CRS. There are several reasons for this policy:

  • Own FATCA law: The USA already has its own FATCA law, which requires foreign financial institutions to report the assets of US citizens.
  • Data protection and data sovereignty: There are concerns regarding data protection and data sovereignty over the financial data of US citizens.
  • Economic policy reasons: Another important reason is that many US companies Value added tax and could get into financial difficulties as a result. The US government wants to prevent this in order to avoid insolvencies and protect the economy.

There is currently no sign of the USA moving away from this stance, even though there is considerable pressure from Europe and the OECD.

What does this mean for LLC founders?

The non-participation of the USA in the CRS has concrete consequences for company founders worldwide who want to establish an LLC in the USA:

  • DiscretionForeign nationals and companies can continue to discreetly pool assets and income in US LLCs without automatic reporting to their home countries.
  • Tax haven: The USA has established itself as a tax haven for legal tax avoidance by companies. The advantage of a US LLC remains attractive for this purpose.
  • Information about FATCAHowever, LLC founders need to be aware of FATCA and other bilateral agreements that could provide for a reporting obligation.

Overall, the USA's refusal to join the CRS shows that there are still gaps in the global transparency of assets and taxes. For company founders worldwide, setting up an LLC in the United States remains a lucrative option for tax avoidance.

Ethical concerns

The targeted use of tax havens and loopholes for tax avoidance is often not legally objectionable, but raises ethical questions. Companies benefit from publicly provided infrastructure, security and education, but do not contribute accordingly through tax avoidance. In addition, excessive tax avoidance by corporations and the rich can lead to growing inequality and underfunding of the common good. A balanced tax policy is important for social cohesion.

Regulatory risks

The low-tax locations of the USA and other countries are increasingly being criticized internationally. Efforts are being made to close loopholes and regulate tax havens more strictly. FATCA and CRS are the first steps in this direction. Companies that still benefit from non-transparent constructs today run the risk of the rules becoming much stricter for them in the medium term. Increasing global regulation of tax avoidance could lead to higher tax burdens.

Concentration on core business

For many companies, the risks and administrative burden of non-transparent tax structures may outweigh the benefits. A focus on the core business and simpler, transparent structures can be more efficient.

There is no one-size-fits-all answer as to whether and how tax avoidance makes sense. Every entrepreneur must carefully weigh up the legal, ethical and economic risks. A general recommendation for tax avoidance would be negligent. A transparent corporate policy may be the better way forward in the long term.


FAQs

What is the Common Reporting Standard (CRS)?
The CRS is an OECD agreement for the automatic exchange of financial and tax data between almost 100 countries.

Why has the USA not joined the CRS?
The US favors its own FATCA law, which already prescribes similar data requirements for foreign financial institutions. There are also concerns about data protection and data sovereignty. Another reason is that many US companies would have to pay back VAT if they joined the CRS, which could lead to financial difficulties and insolvencies.

What are the advantages of forming an LLC in the USA for foreigners?
Foreign citizens can bundle assets and income in US LLCs without this data being automatically reported to their home countries. The USA is considered a tax haven for legal tax avoidance.

What are the risks of using tax havens?
There are ethical concerns as companies benefit from public services but do not contribute appropriately through tax avoidance. In addition, future regulations could limit the benefits.

What is FATCA and how does it affect LLC founders?
FATCA is a US law that requires foreign financial institutions to report the assets of US citizens. LLC founders must inform themselves about possible reporting obligations.

Is tax avoidance ethical?
The use of tax havens for tax avoidance is often legally permitted, but raises ethical questions. Companies should consider the long-term consequences and social responsibility.

Conclusion

The US refusal to join the CRS offers numerous advantages for LLC founders, particularly in terms of data protection and tax avoidance. Nevertheless, ethical concerns and regulatory risks should be carefully weighed in order to make sustainable and responsible business decisions.

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Disclaimer: Please note that the above dates, tax rates and regulations may change over time. Do not make any independent decisions without first consulting an expert for your individual situation. It is in your interest to always receive individual information from an experienced expert who knows your situation.

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