Offshore Accounts: Insider’s Summary of FATCA and its Potential Future
27 Pages Posted: 8 Dec 2011 Last revised: 1 Mar 2012
Date Written: December 1, 2011
Since its signing by President Obama on March 18, 2010, the Foreign Account Tax Compliance Act (FATCA) has been criticized by many in the financial community. As one of the architects of FATCA, the purpose of this article is to: (i) describe my perception of the origins of FATCA, (ii) discuss selected issues, and finally (iii) make recommendations that may ultimately be helpful to insuring FATCA’s success in both the short and long-run.
The article is written for several audiences. The entire article should be of interest to students and academics. For tax professionals and my former colleagues in government, the recommendations in Section 4 should be of most interest.
Since 2007 the US has made significant progress in addressing offshore accounts through a combination of tools, including the threat of FATCA. FATCA was a bold, unilateral action by the US intended to ultimately provide transparency surrounding offshore accounts of US taxpayers. However, FATCA will take time to successfully implement and there will be growing pains.
The long-term success of FATCA may depend upon whether the US can convince other countries to adopt a similar system, or better yet, join with the US in developing a multilateral FATCA system. Thus, as the IRS and Treasury implement FATCA they need to focus on the long-term goal. In the short-run various compromises will need to be made to ease the initial implementation of FATCA. Some of those potential compromises are discussed in this article. In addition, a multilateral FATCA system and the related benefits are discussed.
Finally, financial institutions worldwide should seriously consider attempting to help forge an international consensus. Although financial institutions will clearly incur substantial costs from FATCA, those costs may pale in comparison to the future costs that could be incurred over the next 5 to 20 years as other countries implement their own specific systems. It would be substantially cheaper for financial institutions if there is one global standard, rather than ultimately building separate FATCA type systems for each country.
Keywords: FATCA, Offshore Accounts, Foreign Account Tax Compliance Act, Qualified Intermediary, and Voluntary Compliance Initiative
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