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FATCA and Schedule UTP: Are these Unilateral US Actions Doomed Unless Adopted by Other Countries?

J. Richard (Dick) Harvey

Villanova University School of Law and Graduate Tax Program

March 2012

Villanova University School of Law Paper No. 2012-2005

In the past two years, the US has unilaterally adopted two, very controversial transparency initiatives:

•FATCA - Imposes a 30% withholding tax on a foreign financial institution (FFI) that desires to access the US financial market unless the FFI agrees to report information about its US customers.

•Schedule UTP - Requires large corporations to disclose uncertain tax positions (UTPs) for which a tax reserve has been recorded in audited financial statements.

While a senior US government tax official, the author was heavily involved in developing both FATCA and Schedule UTP. The primary purpose of this article is to discuss certain of the global considerations of these two ground-breaking initiatives. For example: Does the US need multilateral action to accomplish its goals with respect to either FATCA or Schedule UTP, and if so, what form might such action take?

The paper concludes the following:

•The US likely needs multilateral action to successfully implement FATCA, but it does not for Schedule UTP.

•Foreign countries would benefit greatly from using the US’s leverage to effectively force financial institutions to join a multilateral FATCA system. The US would benefit from reducing the number of viable investment options available to US tax cheats.

•A successful multilateral FATCA system could incorporate multiple design features. For example, it could accommodate both a reporting and withholding model. However, if this option is selected, a “punitive withholding model” should be adopted that has a relatively high tax rate and applies to both investment income and new money. The failure to apply withholding tax to new money is a major deficiency of the recent withholding agreements between Switzerland and the UK/Germany.

•Schedule UTP requires a corporation to link a tax reserve with a specific tax issue. If tax reserves are recorded on an aggregate basis, the link between a tax reserve and a specific tax issue may be more difficult to establish. This issue had been resolved by FIN 48 in US GAAP, but it still exists for IFRS. Fortunately, there is a solution.

Number of Pages in PDF File: 27

Keywords: FATCA, Offshore Accounts, Foreign Account Tax Compliance Act, Qualified Intermediary, Voluntary Compliance Initiative, Schedule UTP, transparency, and international compliance

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Date posted: March 27, 2012 ; Last revised: March 29, 2012

Suggested Citation

Harvey, J. Richard (Dick), FATCA and Schedule UTP: Are these Unilateral US Actions Doomed Unless Adopted by Other Countries? (March 2012). Villanova University School of Law Paper No. 2012-2005. Available at SSRN: https://ssrn.com/abstract=2029963 or http://dx.doi.org/10.2139/ssrn.2029963

Contact Information

J. Richard Harvey (Contact Author)
Villanova University School of Law and Graduate Tax Program ( email )
299 N. Spring Mill Road
Villanova, PA 19085
United States
610-519-4474 (Phone)
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