Background and Current Status of FATCA and CRS (Sept. 2017 edition)
William Byrnes, Guide to FATCA and CRS Compliance, Lexis (Sept. 2017)
185 Pages Posted: 4 Oct 2017 Last revised: 18 Oct 2017
Date Written: September 29, 2017
FATCA’s primary purpose was for the U.S. government to obtain otherwise private financial information and exercise control of the global financial industry. Unlike a conventional withholding tax which actually intends to collect tax, FATCA imposes penalties based upon non-compliance with tax.
The tax revenue projections, which were used to validate the passage of FATCA did not show FATCA raising any significant tax revenue annually. In fact, except for the extraordinary penalties assessed, little additional tax has been collected. In comparison to the annual on budget spending by the U.S. government, the actual amount of tax collected by FATCA is statistically insignificant.
It is questionable whether any statistically significant additional compliance has resulted that would not have otherwise resulted from regular IRS campaigns. By example, foreign tax credit filing actually fell from a high of 7.6 million in 2007 to 7.4 million in 2013, and foreign income exclusion filing has fallen from 475,000 in 2012 to 453,000 in 2014. Moreover, there is a disconnect among filings numbers: while 8.5 million U.S. taxpayers filed for a foreign income exclusion or a foreign tax credit resulting from foreign income, only 1.1 million filed FBARs from this potential pool and only 300,000 filed Form 8938.
A majority of the more than 250 governments that want tax information about their citizens may be classified as “grey hat” and “black hat” by measure of Transparency International’s corruption index. Of 167 countries ranked by Transparency International for the breadth of corruption from 100 (very clean) to 0 (highly corrupt/failed state), only 50 countries ranked above a score of 50, and only 12 scored above 80. A legitimate question is whether it is prudent for the U.S. government to trust the governments of the 117 countries that scored a 50 or below on Transparency International’s corruption index with taxpayer financial information derived from U.S. bank accounts? Reciprocity may encourage nefarious governments’ behavior by providing financial information to feed corruption and suppression of political rivals.
Keywords: FATCA, offshore, international tax, tax haven, intergovernmental agreement, IGA, tax compliance, GATCA, Common Reporting Standard, OECD
JEL Classification: H20, H26, K34, N20, F02, K33
Suggested Citation: Suggested Citation