FATCA: An Overview of Its Scope and Application to Non-U.S. Entities Chapter
Caplin & Drysdale

FATCA: An Overview of Its Scope and Application to Non-U.S. Entities Chapter

Date: 12/23/2013

In their article for The International Comparative Legal Guide to: Private Client 2014 Edition, Michael G. Pfeifer and Dianne C. Mehany provide an overview of the U.S. reporting obligations that certain non-U.S. entities will have under the Foreign Account Tax Compliance Act (FATCA).  They also discuss the procedural framework contemplated under the final Treasury Regulations issued to implement FATCA on January 28, 2013, and note some of the variations introduced by the Intergovernmental Agreements  in effect amongst various jurisdictions. To view the full article, please click on the link above.

Excerpt taken from the article. This article appeared in the 2014 edition of The International Comparative Legal Guide to: Private Client; published by Global Legal Group Ltd, London.

The U.S. Department of State estimates that seven million U.S. persons (including both citizens and holders of immigrant visas) reside outside the United States.  These persons are subject to U.S. federal income tax on their worldwide income regardless of where they live.  Additionally, as U.S. persons, they must file a wide array of "information returns" disclosing their interests in foreign corporations, partnerships, trusts, and financial assets.  One of these information returns, the Report of Foreign Bank and Financial Accounts (the "FBAR") has received particular attention in recent years.

Despite the existence of these pervasive reporting obligations, records show that only about 700,000 FBARs were filed for the 2012 calendar year.  Even if half of these were filed by U.S. persons residing abroad (which is unlikely), less than ten percent of U.S. persons living abroad report their non-U.S. financial interests, as required if the aggregate value of their foreign financial accounts exceeds $10,000.

Similarly, though hailed as a great success, the Internal Revenue Service's ("IRS") three  "voluntary disclosure" initiatives since 2009 (each keyed to taxpayers' failure to file the aforementioned FBAR) have resulted in only approximately 39,000 disclosures to date.  Obviously, in order to locate all financial assets of U.S. persons living abroad, Congress needed a reporting system that did not rely solely on individual self-reporting.  Enter the Foreign Account Tax Compliance Act ("FATCA").  Enacted in 2010 for initial roll-out in 2013, FATCA specifically targets U.S. persons seeking to avoid U.S. tax by depositing money in offshore banks or becoming investors in offshore entities that legitimately avoid or minimise their U.S. tax liability.  FATCA is administered jointly by the Department of Treasury ("Treasury") and the IRS (collectively referred to herein as the "U.S. Government").

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