The FATCA Provisions of the Hire Act: Boldly Going Where No Withholding Has Gone Before
Melissa A. Dizdarevic
Fordham University School of Law
April 10, 2011
Fordham Law Review, Vol. 79, p. 2967
In an effort to crack down on offshore tax evasion, the U.S. is implementing a new set of information reporting and withholding requirements on foreign banks and other foreign entities. These provisions, known as the FATCA provisions of the HIRE Act, require thirty percent withholding of the entity’s U.S.-source income, unless they disclose specific information regarding their customers’ identities and account balances. While this may be an effective way to force foreign institutions into compliance, it also raises questions about how it will function within existing tax reporting systems, where the function of withholding serves a materially different purpose.
The FATCA reporting and withholding provisions depart from the norm of using withholding as a tax enforcement mechanism, and instead use it as a coercive compliance measure. This Comment looks to current domestic and international withholding systems as a point of comparison for this new regime. By examining the objectives and operation of these existing systems as compared those of FATCA, it becomes clear that withholding income serves a drastically different purpose. Existing systems utilize withholding as a means of ensuring that taxes will be paid, while FATCA implements it as a way to force foreign banks to comply with a set of reporting requirements. Considering this is the first time withholding appears to be used in this way, it is prudent to ask whether this is a desirable use of withholding in our current international taxation system. This Comment posits that, without significant revision to account for conflicts arising with pre-existing obligations, converting the accepted concept of withholding into a drastically different punitive measure is both undesirable and unacceptable.
Number of Pages in PDF File: 28
Keywords: FATCA, withholding, international taxation, tax, tax evasion, foreign accounts, qualified intermediary, information reporting, HIRE ActAccepted Paper Series
Date posted: April 12, 2011 ; Last revised: June 30, 2011
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