Regulation

In the Chair with the US Treasury


By (01/11/2014)

In the last edition of the IFC Economic Report we examined in detail the compliance issues, queries and potential problems that FATCA was raising amongst commentators around the world. we speak directly to the source of the FATCA legislation, the US Treasury to address the issues raised by FATCA objectors.

 

IFC: What was the primary objective of FATCA – what did the authors hope to achieve through its implementation?

US Treasury: FATCA was enacted in 2010 by Congress with bipartisan support to target noncompliance by US citizens of tax obligations using foreign accounts.  Since then, FATCA has become the global standard in combatting international tax evasion and promoting transparency.  Treasury’s regulations to implement the law are designed to achieve this goal while minimising burdens on affected persons.  

 

IFC: Has financial secrecy stood in the way of economic growth in the US?

US Treasury: When US taxpayers use overseas accounts or foreign entities to hide income and avoid paying what they owe, other Americans are forced to bear a disproportionate share of the tax burden.  FATCA is an important part of the US government’s effort to address this issue of tax evasion.

 

IFC: Could you take us through some of the practical tools in place to make compliance easier and more effective?

US Treasury: Treasury’s decision to implement FATCA through IGAs that are respectful of the individual laws and customs of partner jurisdictions has contributed to the significant international interest in participating in FATCA compliance. In general, FATCA regulations phase-in the due diligence, reporting and withholding requirements for foreign financial institutions and withholding agents through 2016.  Additionally, to further help smooth the implementation process, for 2014 and 2015, Treasury and the IRS issued guidance providing that the IRS will not penalise institutions that make reasonable, good faith efforts to update their businesses practices and information systems to comply with FATCA.

 

IFC: What are the options open to governments / institutions /individuals when seeking to comply with FATCA?

US Treasury: The FATCA intergovernmental agreements (IGAs) in themselves are an example of our efforts.  By working closely with foreign governments, we have been able to create clear methods through which foreign financial institutions (FFIs) share necessary information about their US customers in ways that abide by the local laws of their jurisdictions. 

The two FATCA model IGAs incorporate a two-pronged approach: under the first model, FFIs report to their respective governments who then relay that information to the IRS; or, under the second model, they report directly to the IRS to the extent the account holder consents or such reporting is otherwise legally permitted, supplemented by government-to-government cooperation to facilitate reporting on non-consenting accounts.  These model IGAs offer alternative frameworks for information sharing that abides by local laws.

 

IFC: Have governments around the world been receptive to the legislative and compliance demands that FATCA places on them? Have some regions been less responsive than others?

US Treasury: Treasury’s decision to implement FATCA through IGAs that are respectful of the individual laws and customs of partner jurisdictions has contributed to the significant international interest in participating in FATCA compliance efforts.   The US has FATCA agreements treated as in effect with more than 100 jurisdictions around the world - including many of the largest countries and major financial centers – and more than 100,000 financial institutions already registered to comply with the IRS. The international support for FATCA is without question. 

 

IFC: How has the process gone since the July deadline?

US Treasury: In total, there are more than 100 jurisdictions with agreements treated as in effect and more than 100,000 financial institutions already registered to comply with the IRS.  This response clearly demonstrates the significant and growing international support for its implementation to combat offshore tax evasion.

 

IFC: Record numbers of Americans are giving up their citizenship – is this of concern to the Treasury?

US Treasury: FATCA’s withholding obligations fall on institutions making payments to FFIs, and the due diligence and reporting requirements fall on the FFIs themselves.

US taxpayers, including US citizens living abroad, are required to comply with US tax laws.  Individuals that have used offshore accounts to evade tax obligations may rightly fear that FATCA will identify their illicit activities.  Yet a decision to renounce US citizenship would not relieve these individuals of prior US tax obligations, and might well create additional US tax obligations for certain citizens and long-term residents who give up citizenship or residency.

 

IFC: Have foreign banks begun to refuse to do maintain US accounts because of FATCA as initially feared?

US Treasury: We take claims of US citizens facing difficulties in the international financial system very seriously, and we welcome further engagement and dialogue with our expatriate community about their concerns.  It is important to note that the G-20 has already endorsed the Common Reporting Standard, or the multiateralisation of FATCA. 

This means that most of the world’s strongest economies agree with FATCA’s policy objectives and are preparing to have their financial institutions report information about virtually all non-resident account holders in their jurisdictions – not just US account holders.  Once this occurs, FFIs worldwide will be required to report on most non-resident account holders, dissipating any focus on US account holders because of FATCA. 

We would also note that the mere fact that an FFI does not have US account holders does not mean that they will not be withheld upon under FATCA.   Since FATCA withholding applies to the US investments of institutions whether or not they have US account holders, turning away known US account holders will not enable an FFI to avoid FATCA.  

The goal of FATCA is to improve information reporting and tax compliance by US citizens.  Nothing in FATCA requires FFIs to close, or refuse to open, accounts of US citizens as long as the individuals provide the necessary identification information.  FFIs that engage in this activity are doing so by choice, not by requirement. 

 

IFC: Some have claimed that FATCA and the IGAs being signed are in breach of the terms of US tax treaties with other countries – in your opinion is this case and if so does it not undermine the US’ role in international tax regulation?

US Treasury: Treasury’s decision to implement FATCA through IGAs that are respectful of the individual laws and customs of partner jurisdictions has contributed to the significant international interest in participating in FATCA compliance efforts.  

 

IFC: Similar legislation to FATCA has been created by other governments around the world, is the automatic exchange of tax information globally the ultimate goal of the US government?

US Treasury: The automatic exchange of tax information globally is an international priority.

In fact, the OECD’s “Common Reporting Standard” is closely based on FATCA’s intergovernmental approach and serves as a testament to the success of our efforts to combat offshore tax evasion through the implementation of FATCA.  The G20’s endorsement of this standard underscores that promoting tax transparency is a global priority and we are proud to lead the charge on this pressing issue by implementing FATCA and collaborating closely with our G20 partners.