The U.S. Foreign Account Tax Compliance Act: American Legal Imperialism?

Abstract

The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 and came into effect on January 1, 2013.1 FATCA is by far the most extraordinary example of Congressional extraterritorial legislation in U.S. history. Eschewing the traditional practice in international law of limiting national legislation to the territory of the sovereign, the U.S. Congress explicitly crafted FATCA to impose egregious, continuing due diligence and reporting obligations on more than 100,000 financial institutions, each of which is organized and operates outside the territory of the United States. FATCA is designed to increase U.S. income tax compliance by American tax payers holding financial assets outside the United States.

This article briefly outlines the requirements of FATCA, describes the outcry by American expatriates to the unintended consequences of FATCA as well as the predicament of “accidental” and “incidental.” Americans who find themselves subject to years of unpaid obligations imposed by the unique approach to taxation contained in the Internal Revenue Code. The article concludes by describing a potentially monumental unintended consequence of FATCA, the end of the centuries old practice of sovereigns refusing to enforce revenue laws of other sovereigns as the developed world joins together to arrange mutual FATCA-like reporting to enhance tax collection efforts globally.

Keywords: Foreign Account Tax Compliance Act, FATCA, tax, legislation, foreign, extraterritorial