The US Foreign Accounts Tax Compliance Act (FATCA) and interaction with G20 initiatives: a quick guide

Abstract

This guide provides a selection of information sources about the Foreign Account Tax Compliance Act, an American law developed to reduce offshore tax evasion which has implications for Australia. Introduction: The Foreign Account Tax Compliance Act (FATCA) is an American law developed to reduce offshore tax evasion and regain federal tax revenues from American account holders at foreign (non-American) financial institutions internationally. It therefore has implications for Australia and its financial institutions. The impetus for the Act was a 2009 court case in which Swiss Bank UBS was found to have assisted American nationals to evade paying American taxes. As a result, UBS agreed to pay the United States (US) government US$780 million in fines, restitution and provide the names of suspected tax cheats. According to the United States Department of Justice, the use of offshore bank accounts to avoid paying American taxes costs the US Treasury, in total, at least US$100 billion annually. The wide-reaching FATCA was passed in the 111th Congress as part of the 2010 Hiring Incentives to Restore Employment Act (Hire Act), becoming law in March 2010. FATCA requires: – individuals to report their financial accounts held outside of the United States, and – foreign (that is, non-US) financial institutions to report to the Internal Revenue Service (IRS) about their American clients. To enforce the FATCA, it has become necessary for the US government to sign agreements with foreign governments allowing the trade of individuals’ financial data; this is outlined below. FATCA’s large scope and international presence has led to fears about the expanding reach of the US Treasury and IRS. The Australian Government is seeking to address concerns regarding the infringement of individuals’ data privacy rights and Australian taxation sovereignty prior to signing an Intergovernmental Agreement with the United States