In part one of this post, we likened the dramatically different offshore account compliance regime to climate change. To pick up where we left off: what is the role of the Foreign Account Tax Compliance Act (FATCA) in bringing that about?
It’s an issue we’ve discussed, without the climate change imagery, in numerous posts in recent months. Two weeks ago, for example, we wrote about how the complexity of FATCA compliance is causing many foreign financial institutions to consider closing the accounts of U.S. taxpayers in order to be free of the burdensome regulations that are now attached to them.
There have also been numerous passport renunciations by U.S. taxpayers who live abroad and have tired of trying to jump through two sets of tax hoops: the country where they live AND the U.S. These people include both citizens and green-card holders.
Much like climate change itself, the most extreme effects in this changed tax climate for foreign accounts may still be to come.
For example, next year the IRS is expected to begin insisting that foreign financial institutions (FFIs) take an even more active role in efforts to prevent or detect offshore tax evasion. The U.S. Treasury wants FFIs to either withhold 30 percent of interest or dividend payments on foreign accounts held by U.S. taxpayers or verify that the recipient of those payments is exempt from withholding.
Before the offshore climate changed so much, FFIs could have cited traditional bank secrecy laws. But the U.S. is working to create agreements with foreign governments that undercut those traditional laws.
There are still many implementation issues to be worked out. And FATCA could still become an international train wreck. For now, however, it would be naive to deny that the offshore game has changed.
Source: The Wall Street Journal, “Offshore Accounts: No Place to Hide?” Laura Saunders, September 20, 2013