Troubles Brewing Over Global OECD FATCA Standard
The alphabet soup of foreign reporting is getting complicated. If banks and tax preparers don’t understand the law, do businesses and individuals even have a chance? Probably not. Much of our tax practice is based on FATCA but that doesn’t mean we don’t support simplified reporting rules.
The goal of FATCA (short for the Foreign Account Tax Compliance Act) is greater tax transparency and improved tax compliance. As drafted by Congress in 2010, FATCA requires foreign financial institutions to perform basic due diligence on their accounts and report those with ties to the United States. A “tie” could be an account holder who is a U.S. citizen or even having a mailing address within the United States. For business and nominee accounts, it means finding out who controls or owns the business or has signing authority over the account.
Privacy advocates decried the new legislative mandate as did the tax haven jurisdictions such as Switzerland. In the last few years, however, many other nations realized that they too are losing money because of offshore tax evasion. When Cyprus experienced their recent banking crisis, many of the people who lost money were Russians. Just like some Americans “hid” money in Cayman and Swiss accounts, Russians often parked money in Cyprus.
Opening a foreign account is legal but the IRS wants to know about it. Now other countries want to know too. The United Kingdom has its own FATCA law and as I write this, the Indian government is actively seeking account information from its neighbors.
The 20 largest and most developed nations quietly formed their own FATCA model. Once dubbed “GATCA” (short for Global Tax Compliance Act) it is now called OECD FATCA. All 20 G20 nations have endorsed the concept. The devil, of course, is always in the details.
OCED FATCA was originally intended to make life easier for banks and financial institutions. Have one global reporting model. Banks would perform certain due diligence with every new account or signatory and alert those countries that may have an interest. Unfortunately, that model has now taken a drastic change.
The newest rhetoric from the OECD (Organisation for Economic Cooperation and Development) says that their OECD FATCA model is a baseline or starting point. That means each country is free to require more information. If foreign and US banks are screaming that it will cost billions to implement FATCA, the prospect of 196 countries each with their own reporting requirements could become a nightmare for banks.
Every member of the OECD has signed on to the concept with the exception of Luxembourg (which is considered a “tax haven”). Even Luxembourg sees the handwriting on the wall and is expected to participate, however.
Whether the OECD can make FATCA easier for banks or worse remains to be seen. One things is fairly certain, however, FATCA is here to stay.
The IRS tax lawyers at Mahany & Ertl help both foreign banks and taxpayers comply with FATCA. If you have questions or concerns or need help developing a compliance strategy, give us a call. For more information, contact attorney Bethany Canfield at or attorney Brian Mahany at . Both can also be reached by telephone at (414) 223-0464. Initial consultations are free and always confidential.
Mahany & Ertl – America’s Tax Lawyers