11th July 2014
Washington’s reach around the world extended this month with the roll out of the Foreign Account Tax Compliance Act (Fatca), which is being hailed as the global standard in tackling international tax evasion. After a four-year process America’s global tax law is now here and even Russia and China have signed up.
It forces financial institutions to share details of any assets owned by Americans overseas with the Inland Revenue Service (IRS).
Almost 100 countries are on board and have agreed to share information about US citizens’ accounts. Russia came around at the last moment after president Vladimir Putin lent his signature to a decree telling the nation’s banks to send information about US taxpayers to Washington.
Deputy assistant secretary for International Tax Affairs Robert Stack said: “With Fatca agreements treated as in effect with nearly 100 jurisdictions and more than 80,000 financial institutions already registered to comply with the IRS, the international support for Fatca is without question. We will continue to work with our international partners in our efforts to crack down on international tax evasion and create a fairer and more transparent global tax system.”
Fatca, which was was enacted in 2010, requires foreign financial institutions to share information on US citizens with US tax authorities. The US government has also signed a number of reciprocal agreements with foreign governments. For example, data on Australian citizens with US accounts will be available to tax authorities in Canberra.
FFIs that do not agree to identify and report information on US account holders face heavy financial penalties. Those that do not will be subject to 30 per cent withholding on certain payments from the US.
The legislation has had far reaching repercussions. The OECD says the implementation of Fatca has acted as a “catalyst” for its new global framework for the automatic sharing of corporate tax information.
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