Arriving 18 months late on the scene, The Foreign Account Tax Compliance Act (FATCA) came into effect this week in an effort to crack down on tax dodgers funneling money outside the country, the Hill reports.
FATCA stems out of the IRS’ rule that income obtained by American citizens anywhere in the world is taxable, regardless of whether or not the person lives inside the United States.
One of the central requirements of the act is that foreign banks must reveal details of American-held accounts which have holdings over $50,000. In addition, on certain stipulated payments, U.S. banks must freeze 30 percent of the total amount transferred, if the receiving institution refuses to release information on the American identities behind the accounts.
While the withholding penalty has already come into effect, turning over of account information will not be required until March 2015.
While it might at first glance seem difficult to secure compliance from foreign banks, the looming threat is that failure to cooperate will result in being frozen out of US markets.
Up to this point, 80,000 financial institutions and 90 countries have signed on, even traditional tax havens like the Cayman Islands, as well as typically obstinate countries like China and Russia.
In Russia’s case, despite the fact that U.S. negotiations have stalled with Moscow, hundreds of Russian banks have voluntarily joined onto the agreement, not wanting to face the drop in market share that would inevitably arise from 30 percent transfer penalties.
Republicans have made opposition to FATCA an official component of the party’s platform. One industry official concurred, noting that FATCA places a particularly onerous burden on American expatriates. “There are enormous costs to this sort of dragnet approach to offshore compliance just for U.S. citizens,” one industry official said.
“People who have practiced in this area in the U.S. are having a hard time understanding and keeping up with the current rules. And then, consider that you’re applying this all over the world.”
IRS commissioner John Koskinen, however, reiterated that implementing the legislation was a priority, even though the IRS is operating on a small budget. “Whatever else we are going to do, we are going to implement the non-discretionary legislative mandates we have been given: the Affordable Care Act [ACA] and FATCA,” Koskinen said in April.
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