Background and Current Status of FATCA

This page is a summary and review of: Byrnes, William and Munro, Robert J., Background and Current Status of FATCA (March 1, 2017). LexisNexis® Guide to FATCA & CRS Compliance (5th ed., 2017) . Available at SSRN: https://ssrn.com/abstract=2926119

The paper is 130 pages - I have only summarised those sections relevant to our work.

This page is still under construction!

The authors make the case that FATCA is not about collecting tax revenue, it is about control and access to information. However, the U.S. government is unable to ensure the data security of the vast amount of private data that is collected.

There are some useful quotes on page 1-4:

While the tax revenue aspect of FATCA is widely quoted, in fact, tax revenue was not intended to close the U.S. revenue loss gap. Senator Levin stated that FATCA was intended to “force foreign financial institutions to disclose their U.S account holders or pay a steep penalty for nondisclosure.” [footnote omitted] It appears that the primary purpose of FATCA was for the U.S. government to obtain otherwise private financial information and control of the global financial industry.

and

What it actually does is force U.S. capital held offshore to return to the United States financial system.

and

…FATCA is an interim measure intended as a highly coercive penalty regime to force foreign financial institutions to disclose private financial information to the IRS unilaterally and submit to governmental control.

The widely reported $100 billion per year lost to offshore tax evasion can be traced to an unsubstantiated footnote in a report to Congress in 2001.

The UBS scandal provided the excuse for FATCA. The IRS had instituted the Qualified Intermediary (QI) regime in 2001 - essentially this regime made it easier for large foreign banks to access the U.S. financial system. The banks agreed to report on all U.S. account holders (by filing 1099s on U.S. Source income) and withhold the appropriate amount from Non-Resident Aliens (NRAs) as required by Chapter 3 of the Internal Revenue Code, in return for simplified procedures around the Chapter 3 withholding. UBS was charged with violating its QI agreement by knowingly assisting U.S. customers with tax evasion. UBS paid $780 million in fines and penalties and disclosed 4,450 U.S. customers (out of the 52,000 originally requested by the IRS). Most of the individuals prosecuted / fined as a result of the UBS disclosures appear to have been U.S. residents. The authors use two examples to make the point that the penalties charged were excessive relative to the unpaid tax.

After UBS, the Department of Justice created a program for Swiss banks to “volunteer” for Non-Prosecution Agreements. Under these agreements, the banks would “come clean” and give up the names of the U.S. clients they assisted with tax evasion.

It appears that the individuals prosecuted were either a) bankers who had assisted with tax evasion (mostly non-U.S. persons) and b) U.S. residents who had been using the banks to evade their U.S. taxes. None of the FBAR penalty cases appear to be foreign residents.

The authors review other compliance initiatives from the OECD, European Union and other international groupings. The trend is toward automatic exchange of information, with FATCA leading the way. The incentives are obvious for high tax countries, less so for low tax countries.

{quote on p 21 about governmental hypocrisy promulgated as policy}

{There's a section on page 1-22 that states that individual rights need to be strengthened}

There's a whole section detailing the various U.S. offshore compliance programs. (here's where the data on collections is - but most of it is FBAR penalties, not ongoing tax)

{section 1.15}

{section 1.18}

{Section 1.19}

{section 1.20}

{section 1.21}