Transparency and Tax Evasion: Evidence from the Foreign Account Tax Compliance Act (FATCA)

59 Pages Posted: 19 Sep 2017 Last revised: 20 Jun 2018

Lisa De Simone

Stanford Graduate School of Business

Rebecca Lester

Stanford Graduate School of Business

Kevin Markle

University of Iowa - Henry B. Tippie College of Business

Date Written: June 6, 2018

Abstract

We examine how increased reporting requirements for U.S. individuals with offshore accounts affect the location of hidden investment assets. Specifically, we study investment responses to the Foreign Account Tax Compliance Act (FATCA), which requires foreign financial institutions to provide information to the U.S. government regarding U.S. account holders. We document a $15.3 billion decrease in equity foreign portfolio investment to the U.S. from tax haven countries after FATCA implementation, consistent with a decrease in “round-tripping” investment activity attributable to U.S. investors’ offshore tax evasion activities. When testing total worldwide investment out of havens post-FATCA, we find a decline of $56.6-$78.0 since 2012. Additional tests provide evidence of increases in alternative investments not subject to FATCA reporting, such as residential real estate and artwork. Our study contributes to both the academic literature on tax evasion and the analysis of similar yet controversial regulation recently implemented by numerous countries around the world.

Suggested Citation

De Simone, Lisa and Lester, Rebecca and Markle, Kevin, Transparency and Tax Evasion: Evidence from the Foreign Account Tax Compliance Act (FATCA) (June 6, 2018). Stanford University Graduate School of Business Research Paper No. 17-62. Available at SSRN: https://ssrn.com/abstract=3037426 or http://dx.doi.org/10.2139/ssrn.3037426

Lisa De Simone

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-3874 (Phone)
650-724-3083 (Fax)

HOME PAGE: http://www.gsb.stanford.edu/faculty-research/faculty/lisa-de-simone

Rebecca Lester

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

HOME PAGE: http://www.gsb.stanford.edu/faculty-research/faculty/rebecca-lester

Kevin Markle (Contact Author)

University of Iowa - Henry B. Tippie College of Business ( email )

Acquisitions
5020 Main Library
Iowa City, IA 52242-1000
United States
319-335-1903 (Phone)
319-335-1956 (Fax)

HOME PAGE: http://tippie.uiowa.edu/people/profile/profile.aspx?id=1643762

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