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FATCA: Solution or Danger?

FATCA webinarOur FATCA webinar has been set for September 16, 2015 at 14:00 EDT. Do you have any questions for our panelists? Check the Event's page HERE.


The U.S. Foreign Accounts Tax Compliance Act (FATCA)

FATCA is a global dragnet constructed by the U.S. government to identify U.S. persons who have financial accounts at banks and securities firms in other countries.

Foreign Accounts Tax Compliance Act (FATCA)

Although not listed as a major goal, FATCA also uncover fronts that financial criminals use to hide their stolen assets and accounts. Enacted in March 2010, the law requires non-U.S. financial institutions to identify, collect and report to the U.S. Internal Revenue Service (IRS) the names, addresses and tax identification numbers of their customers who are U.S. citizens.

They must also report the account balances and annual deposits and withdrawals of these accounts. Failure to comply with this requirement will subject the non-U.S. institutions to a 30 per cent withholding tax on their U.S. income, apart from other taxes.

FATCA is increasingly becoming the global standard in the effort to curtail offshore tax evasion. For years, there has been concern about the so-called “tax gap” – the difference between the tax dollars that are owed under the law, and those that are actually collected. Offshore tax evasion is a significant contributor to the tax gap.

FATCA establishes a process for foreign financial institutions (FFIs) to report information about U.S. account holders to the IRS. The U.S. Treasury developed intergovernmental agreements (IGAs) to implement FATCA effectively. These IGAs require all of the relevant FFIs in a jurisdiction to report information about offshore U.S. accounts – a reporting obligation that will help the IRS catch tax evaders.

Despite all the "benefits" from FATCA, it does not have unanimous support from all with some claiming that it is having a negative impact on the U.S. economy, U.S. financial markets, U.S. businesses operating abroad and U.S. citizens who work and reside overseas.

American Citizens Abroad (ACA)

American Citizens Abroad Logo

ACA - a non-profit, non-partisan, volunteer association whose mission is to defend the rights of U.S. citizens living overseas - is working hard to educate the legislature and decision makers to inform them of the many dangers of FATCA. Recently legislators and the media have come out in strong opposition to FATCA, some advocate for repeal, others for revisions of the regulations. All are unanimous that FATCA as currently drafted is bad for the U.S. and its citizens.

According to the ACA, FATCA creates serious negative ramifications on the entire U.S. economy and more specifically on:

  • U.S. financial markets and financial institutions
  • U.S. businesses operating in global markets
  • U.S. citizens residing overseas
  • U.S. citizens with legitimate investments overseas

In addition, - a website dedicated to getting rid of "the worst law most U.S. citizens have never heard of" - added that, "the way the U.S. Treasury plans to enforce FATCA, it would probably lose more money than it would take in! Tax evasion at home or abroad is a valid concern, but FATCA is the wrong way to address it."

Despite the indifferent opinion on FATCA, several countries in Asia have come to see the benefit of exchanging taxpayer information with other countries, and are said to be developing their own versions of FATCA.

FATCA Compliance

While the requirements for FATCA compliance have been the subject of much criticism and debate over the past years, many governments now see the benefits of such a regime. “Everyone beats up on FATCA, but a lot of countries now realise that they can use this [taxpayer] information for their own [investigations],” stated Al Demeter, managing director at Citigroup Security & Investigative Services.

“In fact, one thing I have realised in this region, a lot of countries said they were against it, but in reality, they want the U.S. to take the lead on it, just like we took the lead on anti-money laundering at the G7 back in the 1980s. Nobody wanted to take the lead on that. Now there are two other countries in this region that announced they want to pass their own FATCA laws."

FATCA may be designed to provide the ideal "solution", but despite its many said benefits it seems to be dividing opinion more than ever.

Written by: Mario Hajiloizis