REGULATORY INITIATIVES
depository accounts less than $50,000.16 The
IRS has stated that FATCA will require electronic reporting and they will be creating
new forms and agreements.17 Unresolved
questions still remain and there will be
further workable implementation guidelines
from the Treasury Department to come.
Questions and concerns
FATCA definitely makes it more difficult
for “U.S. persons” to hide assets in offshore
accounts. No doubt, it is a big step forward
in creating a more transparent and accountable global financial world. It may also set a
standard for the rest of the world to adopt in
order to avoid tax evasion in their countries.
But there are many questions that arise. First,
is such an Act that is so highly burdensome
to both the IRS and the international financial
community worth the cost?
According to the Joint Committee on Taxation, FATCA is only estimated to recover
$8.7 billion in U.S. taxes over the next
10 years.18 This is a far cry from the $100
billion estimated by Congress to be lost on
an annual basis due to tax evasion. Why is
there such a difference? Is this an overestimate by Congress; an underestimate by the
Joint Committee on Taxation, or is FATCA
only going to stop a small portion of U.S.
tax evasion?
Undoubtedly, the costs of implementing
FATCA are going to be staggering for FFIs.
The inherent risks, complexities of building
extensive technology systems and legal
challenges, especially in instances where
FATCA conflicts with an FFIs’ domestic laws,
provide an enormous burden for FFIs. The
European Banking Federation and the Institute of International Bankers, in their public
comment to the IRS, stated that many large
institutions have conservatively estimated
that it will cost, on average, about $10 to
review each account and properly identify
whether it is an account beneficially owned
by a “U.S. person” or not. Many of these
institutions have between 30-50 million
accounts.19 There is concern in the interna-
tional community that FATCA is a one-sizefits-all solution which is too all encompassing
for FFIs, some of which have very few U.S.
customers. Some argue that FATCA should
be more risk-based, reducing documentation,
reporting and withholding requirements for
those entities, accounts and payments that
are low-risk.
Although it will be costly, most of the larger
institutions will comply with FATCA because
they have enough resources to afford legal,
accounting and the technological assistance
to implement the Act. It is the smaller institutions that might suffer due to high costs
and lack of personnel with knowledge of the
U.S. tax laws. It is even difficult for many U.S.
attorneys to try to unravel and comprehend
the U.S. Internal Revenue Code. So how can
we expect a small institution in a foreign
country whose employees do not speak
English to be able to understand and have the
wherewithal to comply with U.S. tax laws?
Will FATCA cause takeovers of smaller financial institutions that have to divest themselves of U.S. customers or withdraw from
investing in the U.S. markets?
The original version of FATCA included
provisions to impose reporting requirements
on “material advisors,” including attorneys and accountants who earn more than
$100,000 per year assisting in the direct or
indirect creation or acquisition of an interest
in a foreign entity.20 This provision was not
included in the final version of the Act. So,
not only were they left out of the Act, but
it is clear that these professional service
providers will greatly benefit from FATCA
as they will be needed to assist FFIs and
NFFEs around the globe in understanding
and complying with the provisions of the