This is a follow-up to a post we did about a month ago on financial institutions facing scams from fraudsters posing as IRS agents enforcing the Foreign Account Tax Compliance Act (FATCA).
As we discussed in our September 25 post, such scams have been on the increase in the last few months. They have been facilitated by the anxiety and uncertainty experienced by foreign financial institutions regarding new obligations imposed by FATCA to report information to the IRS about their account holders.
In this post, we will discuss how FATCA compliance anxiety affects a particular country with prominent U.S. ties: our friendly neighbors to the north in Canada.
There are hundreds of thousands of Americans who live in Canada. Most of them owe no U.S. taxes. But the uncertainty about FATCA obligations has prompted many people to seek advice from tax accountants about what their obligations are under U.S. tax law.
Canadian financial institutions have also spent hundreds of millions of dollars to comply with FATCA requirements. This includes costs for training employees and putting in place the technological platforms to share information with the IRS.
To be sure, the enforcement of FATCA in a particular foreign country does require an intergovernmental agreement between the U.S. Treasury Department and that country. But such an agreement between the U.S. and Canada is now in effect.
In practice, this means that fraud is not the only side-effect of FATCA. There is also the heavy transactional cost of compliance with a complicated new law. These costs affect both taxpayers and financial institutions alike.
Source: The Globe and Mail, “Sweeping U.S. tax crackdown inflicts heavy collateral damage,” Barrbie McKenna, Oct. 12, 2014