Financial Services Roundtable to the IRS:
July 1, 2001
Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044
Re: Notice of Proposed Rulemaking 126100-00, Proposed Regulations on Guidance on Reporting of Deposit Interest Paid to Nonresident Aliens
Dear Sir or Madam:
The Financial Service Roundtable, representing 100 of the largest integrated financial services companies providing banking, insurance, and investment products and services to the American consumer,
is pleased to offer our comments on the proposed Internal Revenue Service Regulation governing reporting of deposit interest paid to nonresident aliens.
The Roundtable appreciates the efforts of the IRS in issuing the proposed regulation. However, the Roundtable believes that the proposed regulations, as drafted, would result in several large
unintended consequences with little or no corresponding benefit. Most importantly, the Roundtable is concerned that the proposal could adversely affect insured U.S. depositary institutions of all sizes by
encouraging nonresident alien ("NRA") depositors to move substantial amounts of deposits offshore. Additionally, the compliance burden that would be imposed on financial institutions if the regulation is
finalized is potentially quite large.
Impact on U.S. Deposits
NRA depositors choose to keep deposits in U.S. banks because of the stability of the U.S. financial and banking systems. If U.S. banks are required to report these holdings to foreign countries,
particularly those nations with inadequate confidentiality laws or unstable or corrupt governments, the safety of those assets and in extreme situations, the health and safety of the depositors themselves, would be
To avoid potentially adverse consequences if the proposed regulation is finalized, NRA depositors are likely to swiftly move their funds to offshore institutions in countries without similar reporting
requirements. This would harm U.S. financial institutions by lowering their deposit base, and would harm the competitive position of U.S. banks vis-à-vis foreign institutions that do not face similar reporting
Additionally, the Roundtable believes that the proposed regulations would adversely affect U.S. financial companies by creating an undue compliance burden. This burden would include significant
upfront costs to establish systems for reporting NRA deposits. Additional ongoing compliance costs would also be incurred.
In conclusion, Roundtable is concerned the regulation, even in proposed form, will potentially undermine the confidence of NRA depositors in the confidentiality of the U.S. banking system.
Additionally, if finalized, the regulation has the potential to impose significant compliance costs on U.S. institutions. As such the Roundtable respectfully requests that the IRS withdraw the proposed regulation.
If the IRS continues to believes that a regulation is necessary, the Roundtable and our member companies would be glad to work with the agency to develop a more targeted regulatory solution that would address the
concerns of the IRS and our member institutions.