For years lawmakers in America sought to stem the flow of funds by citizens to offshore havens. In response, Congress passed the Foreign Account Tax Compliance Act (FATCA), to identify and recoup losses of tax revenues due to American companies’ and individuals’ sheltering of funds overseas. But, according to many, the effort may prove to create more problems than it solves.
The new law, which goes in to effect on July 1, seeks to bring about an era of free flow of information between banks concerning the overseas deposits of funds by American citizens and companies. FATCA relies on foreign banks to turn over information about such accounts ostensibly requiring these institutions to act, according to critics as arms of the Internal Revenue Services (IRS). Besides the voluminous information participating banks must submit to comply with the law, both financial institutions and depositors of funds in foreign banks complain about the scope of definitions such as “US persons” and “financial institutions”. The uncertainty about the clear meaning of these terms has generated uncertainty about those involved in enforcing the law.
And the 7 million Americans who live abroad have raised concerns about the system as many have been told by their banks that they do not want to handle their accounts due to the burdens of the regulations. And almost 3000 expatriates are renouncing their citizenship or green cards to avoid the law’s scrutiny.
Nevertheless, more than 77,000 financial firms have signed up to participate in the law’s enforcement scheme and almost 80 countries have struck agreements with America to allow their banks to hand over data. Whether the costs to enforce the law will actually justify the extra revenues it recovers is an open question at this point. A second question concerns whether the United States will join in a plan proposed by the OECD (Organization for Cooperation and Development) in which signatories would exchange data on financial accounts annually.
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