Background and Current Status of FATCA

Abstract

The Foreign Account Tax Compliance Act, referred to as FATCA, does not operate in a global tax vacuum. It is nearly impossible to comprehend fully its impact unless its highly technical procedural provisions are viewed in context. This introductory chapter will provide certain background information necessary to understand FATCA, its offspring like the OECD's CRS, and the impact of these initiatives.

FATCA's ostensible purpose was to act as an additional tax revenue source to offset additional spending in the HIRE Act of 2010. FATCA was passed on the unsubstantiated basis that “each year, the United States loses an estimated $100 billion in tax revenue due to offshore tax abuses.” However, the total amount of the offset revenue from FATCA was only projected to $8.714 billion for the ten year period of 2010 to 2020. This chapter explores the revenue raised until 2017 and the offsetting compliance costs.

This chapter also explores various tax pundits allegation that the United States operates as the largest tax haven in the world for individual wealth and that U.S. tax policy for individuals is directed to encourage capital inflow and discourage capital outflow. Support for this allegation includes that approximately 88% of income paid to non-residents did not attract withholding in 2013. U.S. states do not collect beneficial ownership information of U.S. companies. The U.S. has not agreed to globally exchange information pursuant to the OECD's CRS.

Keywords: FATCA, offshore, international tax, tax haven, intergovernmental agreement, IGA, tax compliance, GATCA, Common Reporting System, OECD

JEL Classification: H20, H26, K34, N20, F02, K33