What, More Required International Disclosures?

In January of this year, the Corporate Transparency Act (“CTA” or “The Act”) was enacted as part of the National Defense Authorization Act for Fiscal Year 2021. The purpose of CTA is to remedy what Congress believes are individuals using corporate structures to participate in various illegal activities such as money laundering, tax evasion, terrorism, and other national security threats.

CTA requires a reporting company to report to the Financial Crimes Enforcement Network of the Department of the Treasury (“FinCEN”) the identity of both its’ foreign and U.S owners. The report must provide information including name, date of birth, current address, and unique identification number (from a passport or driver’s license) for the underlying individual owner(s).

A reporting company includes an existing or newly formed corporation, limited liability companies, or other similar entities. Annual reporting updates will be required, however, there are exemptions for: 

• Larger companies, heavily regulated companies, and companies that are already registered with government authorities. Certain tax-exempt organizations can also be exempt from CTA reporting.
• Entities that have more than 20 full-time employees, revenues of more than $ 5 million, and a physical presence in the U.S.
• SEC registered companies, governmental authorities, banks, securities trading firms, public accounting firms, etc. 

A reporting entity also includes a foreign entity that is registered to do business in the U.S. under state law regulations. This could have an effect on condominium ownership and existing corporations used in corporate blocker structures. There are those that would rather try to avoid FinCEN reporting by using a foreign corporation or LLC whose activities fall below the state law doing business registration threshold at the sake of possible tax efficiencies. 

Under the CTA, a beneficial owner includes any individual who, directly or indirectly, through any contractual agreement, understanding, relationship, or otherwise, exercises substantial control over an entity or owns or controls at least 25% of the ownership interests in an entity. There are exceptions such as minors, nominees, agents, intermediaries or custodians, an individual acting as an employee whose control is derived solely because of employment status, individuals whose only interest is through a right of inheritance, and a creditor of the entity, unless the creditor meets the requirements of a beneficial owner. 

The Secretary of the Treasury will also be able to work with state, local, and tribal authorities to gather such beneficial owner information in the case that an individual does not voluntarily come forward. Registering violations may be fined up to $500 per day until remedied, but not more than $10,000 or not more than two years in jail, or both. There are also significant criminal penalties if it is later found they are using such entities in furtherance of criminal activities. Additionally, there are penalties for unauthorized disclosures or use of such identifying information.  

Required compliance with the CTA does not start until January 2022, the deadline for Treasury to draft the regulations. This alert was intended to apprise affected entities regarding potential beneficial ownership disclosures. It will be important to wait to see how this reporting will commence once the Secretary of the Treasury releases these regulations.

In today’s global economy, international tax rules and regulations are becoming more complex. With a wide range of resources at our fingertips, Citrin Cooperman’s International Taxation Services Practice is well-equipped to develop and implement strategies and structure transactions globally. As an independent member firm of Moore Global, we are able to connect with professionals in nearly 100 countries as issues arise.

Our dedicated team provides the guidance and professional expertise that international clients need, both from an inbound and outbound perspective. Whether you need guidance on transfer pricing, cross-border transactions, reporting and withholding tax requirements, or tax-efficient interest expense tax strategies, our professionals can provide analysis, insight, and the assistance you require.

Please contact a member of the International Taxation Services Practice for further information regarding this specific matter.