Given the state of the investment markets, it is probably fair to say that it is a far more taxing time this year than one year ago for multinational corporations doing business with, or connected to, the United States and other tax regime countries.

The headlines here these last few days are distressing, full of announcements that list, generically, reasons that some Bermuda-based international companies are relocating their headquarters to "Switzerland that has a highly stable economic, political and regulatory environment, as well as long-established commercial relationships and tax treaties with the US, and numerous other countries around the world."

That about says it all.

Tax planning this year is also extremely important for individuals with connections to the United States, whether US citizens, dual citizens holding US passports, or green card holders residing in Bermuda or elsewhere outside of the United States.

It is not just the US revenue arm wielding a bigger stick, figuratively, or US politicians assuring themselves of a spot on the evening news by talking about business profits fleeing to tax havens. Now more than ever before, the global taxing authorities commitments to engage with revenue agencies across the world are crystallising in a collaborative shared enterprise to ensure that individuals and corporations pay their fair share of taxes to the jurisdiction they are citizen of, resident or domiciled in, or doing business with.

It is simple, really; every one needs the money.

The United States, as we all know by now, is in a recession, while the US taxpayers are facing the assumption (in one form or another) of an astronomical amount of additional national debt, along with their own personal financial issues.

US Internal Revenue Service Commissioner Douglas Schulman gave a speech to the 21st George Washington University International Tax Conference, on Monday, December 8, 2008. His message, in additional excerpts below, is that Commissioner Schulman and US Internal Revenue Service is significantly stepping up their vigilance to ensure that every US citizen and corporate taxpayer are responsible for and pay their fair share of the country's tax burden. Read on.

"Although there were some ominous clouds on the economic horizon in August 2007, few could have predicted the battered and bruised financial landscape we see today," Mr. Schulman said. "It's fair to say that US taxpayers' attitudes and perceptions about the taxes they pay reflect the changing world around them. Many taxpayers are now looking at the world through a new economic prism - one that draws sharp lines in the taxpayer spectrum, such as global corporations versus the typical US family filing a 1040 return with a wage earnings statement attached to it.

"We must recognise that US multinational corporations shopping for the best tax deals across the globe will come under increased public scrutiny back home. Some of these tax strategies can be legal. And many corporations and their legal and tax advisors are genuinely trying to comply with the myriad international tax laws they face and to avoid double taxation.

"Global corporations based in the US pay taxes in countries throughout the world, but recent events have shown that when it comes to tax jurisdictions, not all are created equal. In our current economic environment, when major multinationals need a helping hand from government, these companies don't seek a pro-rata portion from each of the dozens of jurisdictions around the world where they claim to do business.

"The average American taxpayer who is being buffeted daily by fierce economic winds also feels they have been asked to shoulder most of the risk associated with rescuing the economy , which, I believe will create increased public pressure on corporate taxpayers to adhere to not only the letter of the law, but the spirit of their home country law.

"It is not just corporate taxpayers who are increasingly under the microscope. Given the ease with which capital moves around the world, the US IRS must and will remain vigilant to ensure that wealthy individuals don't use offshore accounts to avoid paying their US taxes. The IRS has a combination of tools at our disposal - all of which we're using simultaneously on our individual area, where our current focus is on unreported off-shore accounts.

"With these tools, we may employ everything from eyewitness accounts, physical evidence, paper trails and the cooperation of law enforcement officials (author assumes domestically and internationally). One of our best tools is the Qualified Intermediary Programme. It gives the IRS an important line of sight into the activities of foreign banks and other financial institutions (Bermuda is a Qualified Intermediary Country).

"The QI programme is critical to facilitating sound tax administration in a global economy. By bringing foreign financial institutions more directly into the US tax information reporting system, we can better ensure that US persons are properly paying tax on foreign account activity, and that foreign persons are subject to the proper withholding tax rates.

"In mid-October, 2008, US IRS issued a set of proposed QI amendments for comment that will make QI audits more useful and give us that clear line of vision and transparency we need in tax administration. They are:

" • Financial institutions that are QIs must provide early notification of material failure of internal controls.

" l They must also improve evaluation of risk of circumvention of US taxation by US persons.

" l They must include audit oversight by a US auditor.

"Informants are another part of our toolkit. Since the inception of the Whistleblower Office in 2007, the IRS has received hundreds of tips on financial institutions and individuals with foreign accounts and international compliance issues. Some of these have become big money cases.

"Our criminal investigation function is also used. The IRS is increasing our resources devoted to investigating the misuse of foreign entities and the use of foreign bank accounts to hide taxable income and is currently pursuing hundreds of criminal investigations of US taxpayers for offshore tax evasion.

"The Joint International Tax Shelter Information Center - or JITSIC - has also proved to be another important resource to combat abusive international tax shelter activity on a real-time basis. The US has received information regarding some transactions of which it had not been previously aware.

"To summarise: The United States cannot allow an environment to develop where wealthy individuals can go offshore and avoid tax without consequence, or where large corporations can pay hefty fees and salaries for top talent to engage in overly aggressive shifting of taxable activities to low tax jurisdictions.

"The US cannot allow this corrosive behaviour to undermine the fundamental confidence in the fairness of the US tax system, which could prompt more and more taxpayers to cross over that dangerous line into non-compliance.

"In this arena, we (the US) will devote whatever resources are at our disposal to ensure that our citizens are confident that we're all playing by the same set of rules."

Source: US Internal Revenue Website

Next week: Part Two: Tax Reporting Responsibilities.

Disclaimer: this article is for general information purposes only and is not to be used as specific tax advice for any individual situation. For your personal tax queries, you are advised to seek the services of professionally qualified and licensed internationally experienced tax and financial planning practitioners. International professionally qualified Tax and Financial Planner firms in Bermuda: Ernst & Young; Chris Larkin, Tax Manager; KPMG; Deloitte; PricewaterhouseCoopers; Patterson Partners.

IRS CIRCULAR 230 NOTICE: Pursuant to recently enacted US Treasury Department Regulations, I am now required to advise you that, unless otherwise expressly indicated, any federal tax information (or advice) expressed above was neither written, nor intended by the author to be used and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed under US tax law.

Martha Harris Myron CPA -NH1929, CFP® -67184 (US licences) TEP - Society of Trust and Estate Practitioners. She is a Senior Wealth Manager at Argus Financial Ltd., specialising in comprehensive financial solutions and investment advisory services for individual private clients and their families, business owners, endowments and trusts. DirectLine: 294-5709 Confidential email can be directed to mmyron@argusfinancial.bm The article expresses the opinion of the author alone. Under no circumstances is the content of this article to be taken as specific individual investment advice, nor as a recommendation to buy/ sell any investment product. The Editor of the Royal Gazette has final right of approval over headlines, content, and length/brevity of article.