In 2010, the U.S. passed the Foreign Account Tax Compliance Act, or FATCA, in an attempt to collect taxes on Americans using offshore accounts to avoid tax compliance. However, foreign banks have since declared the legislation overly stringent and written extensively to the U.S. Treasury to protest. Reuters recently quoted the Swiss-American Chamber of Commerce as calling FATCA “the neutron bomb of the global economic system” and experts worry that FATCA will negatively influence everything from investment in U.S. Securities to account privacy and corporate borrowing from foreign banks.
FACTA COMPLIANCE REQUIREMENTS
Beginning in 2014, U.S. clients of foreign financial institutions with accounts of $50,000 or more will either have money from that account collected by the IRS or have 30 percent of the proceeds from investment payments withheld from the financial institution itself, with that money instead going to the IRS. The IRS will bill any bank or financial entity that refuses to comply 40 percent of whatever the amount that should have been given to the IRS.
FATCA may cost foreign banks $100 million to implement. The Economic Times quoted JP Morgan Asset Management Head James Broderick as stating “”it would be easier to just write a cheque to the IRS.”
However, a repeal of FATCA is unlikely, as the U.S. expects to gain approximately $8 billion in international tax revenue over ten years once the new compliance regulations are in place. Responding to the criticisms, the IRS delayed the implementation of the new regulations until January 1, 2014 while it irons out some of the more controversial aspects of the law. Previously the law was to go into effect in June of 2013.
IRS REVENUE QUESTIONED
While the revenue in question is potentially quite large, it is unclear how many foreign financial institutions will comply with the new regulations. In addition, governments are exempt from FATCA. This means that some banks regulated by its government, such as Swiss Cantonal banks, may be exempt from compliance. In addition, FATCA only covers U.S. investments, so it may be possible for U.S. taxpayers to still avoid tax compliance through foreign investments.
CONTACT AN EXPERIENCED ATTORNEY
FATCA is an extension of an ongoing effort by the IRS to reduce the number of offshore accounts used to avoid tax compliance. If you have questions regarding how the new law may affect your individual or business taxes, speak to a tax lawyer knowledgeable about new FATCA regulations.
