Post image for IRS Winning Friends Among Local Bank Officials

IRS Winning Friends Among Local Bank Officials

by Garland M Baker on January 28, 2008

The sign of things to come: Banco Cuscatlan now requires citizens or resident aliens of the United States to fill out a W9 form for personal accounts at the firm’s banks in Costa Rica.

Why? Because Citigroup bought Grupo Cuscatlan from Corporación UBC Internacional S.A. for $1.51 billion in cash and stock. Grupo Cuscatlan has operations in El Salvador, Guatemala, Costa Rica, Honduras and Panamá.

Most United States citizens are familiar with a W9 form. It is an Internal Revenue Service form used to obtain a person’s taxpayer identification number. In the case of individuals, the identification number is the Social Security number.

The purpose of the form is to acquire information from taxpayers for the United States government’s tax collection efforts. A web version of the form that can be filled out online and printed.

The bank is also requiring account holders to sign a form that states the following:

“The undersigned hereby authorizes Banco Cuscatlan de Costa Rica, S.A. to report, on an annual basis, the information on the account holder and his or her account(s) and any interest earned on such product(s) or account(s) held in Banco Cuscatlan de Costa Rica S.A. to the United States Internal Revenue Service and to withhold any United States tax.”

This is just another scary story of the transparency phantom stalking bank information.

Recently, an expat sold his home in Costa Rica. He almost put the proceeds of the sale in his Cuscatlan personal account. There is no capital gains tax in Costa Rica but there is in the United States. In theory, the bank could withhold money and send it to the United States government as backup withholding to cover taxes due.

If United States expats do not fill out the form, their personal accounts can be closed and/or the bank can withhold as much as 30 percent of any money in the accounts. The deadline for compliance is the end of this January.

Many expats believe their money in Costa Rica is safe from their home country’s tax authorities. Some countries do not required the payment of taxes on holdings or gains from investments in Costa Rica. The United States does. No matter where a United States citizen goes, he or she owes taxes on the money he or she makes on investments.

Many expats from the United States try to hide their gains here by using companies to hold assets. Some go as far as to use Costa Ricans to hold their stock to hide their profits. Those that do
have no control over their assets, and some take a beating from white-collar thieves.

This kind of reporting to the United States is just the start. Cuscatlan is just taking the lead because it is a United States banking institution. GE Consumer Finance purchased 49.99 peercent of BAC San José in May 2005, and since that purchase, the bank has scrutinized accounts very closely. The bank continues to close many questionable accounts held by expats before the purchase.

HSBC recently purchased Banex. HSBC Bank USA has close ties with the Costa Rican subsidiary and will probably be requiring the same forms as Cuscatlan very soon.

All these facts mean the accounts once used by expats to hide money in Costa Rica are almost gone. Most banks, even the ones not mentioned here now, require any new customer to fill out a form or sign an agreement that permits the bank to give information about the account and the account holders to any authority, including the U. S. Internal Revenue Service.

The best practice when living and investing in Costa Rica is to be on the up and up with all of ones business dealings. This includes paying one’s taxes to Costa Rica and the home country. It makes for a better night’s sleep.

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