There was a serious stir in the banking environment after the entry into force of the American law known as FATCA. What does this mean and how is this abbreviation deciphered? The Foreign Account Tax Compliance Act is a federal law (Foreign Account Tax Compliance Act) aimed at forcing American citizens, including permanent residents outside the United States, to prepare annual declarations regarding their foreign financial assets.
The international cooperation
The practical application of this provision requires assistance from banking institutions of all countries of the world. A law passed in 2010 obliges foreign financial institutions to check for US citizenship of their clients. It is important to note that not only having an American passport means having to pay taxes in this country. The fact of birth in the United States and some other conditions may result in the assignment of the status of a person accountable to the Internal Revenue Service and subject to FATCA. What kind of organization is this? The Internal Revenue Service is the main federal body responsible for tax collection and compliance with financial legislation.
Tasks
According to unofficial information, American citizens residing in other countries were not the main goals of the FATCA. The main task was to identify overseas assets of US residents who did not think about emigration, but who preferred to keep their money outside their homeland. According to the calculations of the creators of the FATCA law, the return of such taxpayers to the fiscal authorities should have significantly increased revenues to the state budget. According to some estimates, the new rules apply to approximately 9 million people. The FATCA Act requires the provision of information even about companies and corporations outside the jurisdiction of the United States, if they include American citizens.
Analogies
In the world it is almost impossible to find another state that applies such draconian measures in the field of taxation. Eritrea has a similar policy towards its citizens living permanently abroad. But this African country offers ex-patriots a voluntary tax payment procedure. The uniqueness of the FATCA requirements lies in the fact that they apply not only to citizens. This law applies to individuals identified in the unusual wording "persons with tax obligations to the United States."
According to unconfirmed reports, the loss of the state budget, caused by the concealment by citizens of their foreign assets, is approximately $ 100 billion a year. However, it is not possible to reliably determine the amount of undeclared income.
Bank involvement
The FATCA American law is put into practice in two main ways. It requires foreign financial institutions to enter into an agreement with the Internal Revenue Service. In accordance with this agreement, banks assume the responsibility of identifying in their databases customers belonging to the category of American taxpayers. Financial institutions must disclose account holders with FATCA status. What does this mean? The names, addresses and transactions of individuals suspected by banks of having tax liabilities in the United States become known to the Internal Revenue Service. Information on some types of accounts is not disclosed. This mainly relates to pension savings, which are subject to tax benefits.
Individual disclosure
US citizens with overseas financial assets must independently report them to the Internal Revenue Service by filling out a special form. The FATCA provides for a fine of 40% of the amount of funds held in a foreign account if information about its existence is hidden from the American authorities. Information on foreign assets may be cross-checked by financial institutions that have entered into an agreement with the Internal Revenue Service.
Identification
There is a list of standard signs indicating the probable belonging of a client of a banking organization to the category of persons falling under the definition of FATCA status. What are these criteria? Financial institutions pay attention to the fact of the birth of the account holder in the United States. It is worth noting that this serves as a good reason for obtaining citizenship of this country. Another sign is the presence in the United States of a telephone number, place of residence or mailing address, even in the form of a rented mailbox. Suspicion may be caused by the client money transfers to accounts in American banks.
Check
Financial institutions cooperating with the US tax authorities ask their clients to fill out a special FATCA form. What it is? This form contains questions to identify individuals who are subject to the law. The questionnaire, which aroused suspicion, becomes the subject of further proceedings. In Russia, in the event of a client’s inability to refute assumptions about the existence of an American taxpayer status, the bank offers him to sign an official consent to the transmission of personal data and transaction information to the US authorities. If the account holder refuses to do this, the financial institution has the right to terminate the service.
Ways of interaction
There are two options for cooperation between banks and the US tax authorities as part of the implementation of the FATCA law. What are these schemes? The first model provides for the transfer by credit organizations of information to the government of their country. State authorities then share information with the US fiscal services. The second model is built on the direct interaction of banks and US tax authorities. Russian financial institutions participate in the implementation of the act on foreign assets in accordance with the first scheme and at the initial stage supply the necessary information to the Central Bank and Rosfinmonitoring, which make the final decision on the transfer of information to the US Internal Revenue Service.
Pressure Ways
The US government had to apply some harsh methods of influence on foreign banks in order to attract them to cooperate in the implementation of the FATCA law. What are these levers of influence? The Law on Foreign Assets provides for serious fines and penalties for refusing to conclude an agreement, up to limiting access to the world reserve currency. Among the ways to exert pressure is to deduct 30% of the transaction amounts of bank account holders who do not fulfill the requirements for providing information to the US tax authorities.
Budget revenue
Expert assessments of the financial effectiveness of the law on foreign assets diverge greatly. According to the Congressional Committee on Taxation, the application of the act annually brings about $ 800 million to the state budget. Estimates of independent analysts are more pessimistic. In their opinion, the implementation of this law on a voluntary and compulsory basis provides income to the US budget in the amount of from 250 to 400 million dollars a year. However, even the most optimistic figures cannot be compared with the multibillion-dollar losses associated with tax evasion by placing capital in foreign jurisdictions.
Criticism
According to some experts, the costs of financial institutions caused by compliance with FATCA requirements are several times higher than the amount returned through this law to the US state budget. The Foreign Accounts Act reduced the number of tax evasion cases by about 1%.
The enforcement mechanism based on punitive methods such as withholding money from transactions in the US banking system makes financial institutions unwilling to invest in US jurisdictions.
The concept of taxation is subjected to harsh criticism, the main criterion of which is citizenship, and not permanent residence. From the point of view of the US authorities, American ex-patriots automatically turn into financial criminals. According to statistics, over the past few years, the number of cases of renunciation of citizenship of this country has significantly increased.
The implementation of the FATCA was against the laws of some states. For example, until 2014, Russian banks were not allowed to transfer information about their customers to foreign authorities. This ban was lifted in order to protect financial institutions from fines and sanctions associated with the new American law.