FATCA To Remain for Foreseeable Future
A General Accounting Office report* has helped cast light on why the US government remains reluctant to drop the Foreign Account Tax Compliance Act (FATCA) system in favour of the globally-accepted Common Reporting Standard (CRS).
The CRS came into effect in 2014 as a response to international tax evasion, money laundering and other financial crime. Up until this point, it was extremely difficult for different jurisdictions to share information regarding accounts, income, assets and other financial arrangements. Those instruments that were available were severely limited and had little scope outside of the efforts of individual agreements between two countries.
The Organisation for Economic Co-operation and Development (OECD) changed all this by introducing the CRS, which has quickly become the global standard for exchange of information between the tax authorities of nation states across the world.
The Foreign Account Tax Compliance Act (FATCA)
FATCA operates in a very similar way to the CRS – in fact, the CRS was developed to mirror FATCA – however, it has two crucial differences: 1) it was developed to specifically cater to the needs of the US state and its citizens; and 2) it is concerned with the citizenship of individuals rather than their tax residence. This latter consideration means that FATCA has had the effect of ensnaring a number of "accidental Americans" abroad.
These accidental Americans are often US citizens who live and work overseas, who have very little connection to the US, but with a continued tax liability based on their citizenship alone. Furthermore, the way that FATCA works means that foreign financial institutions are required to disclose their US clients' accounts to either the IRS or their own domestic tax authority, so there is no escape form their US tax liability.
The European Banking Federation reports that there are more than 300,000 so-called accidental Americans living in the European Union.
Why Does the US Persist with FATCA?
The fact that 97 countries have already signed up to the CRS, means there is a great deal of international pressure on the US to cease FATCA in its favour.
However, the recent General Accounting Office (GAO) report indicates that the US will retain its current arrangements, meaning it will stand alone in the world in subjecting its citizens to US taxation regardless of their place or residence.
The GAO report outlined how abandoning FATCA in favour of the CRS would reduce revenue to the IRS, create extra costs and reporting burdens to US financial institutions, and potentially create anomalies that would result in otherwise taxable US citizens avoiding their legitimate US tax liability.
Accidental Americans in France Campaign for Change
Recently, more than 400 "accidentals" living in France sent a letter to US democrats asking for their help in changing their unenviable situation; even those who want to rescind their US citizenship must pay at least $3,000 to begin the process.**
Blacktower (US) LLC, for Cross-Border Financial Advice
Whether you are a foreign national living in the US, an American abroad or an "accidental American", the cross-border wealth management specialists at Blacktower (US) LLC can help you structure your assets and income in the way that best advances your goals and interests, including adhering to FATCA requirements. For more information, speak with us today.
** Reported in the Local, accessed 16-04-19 https://www.thelocal.fr/20190325/accidental-americans-the-battle-against-us-tax-bills-rumbles-on