Foreign Account Tax Compliance Act Research Articles

Has FATCA succeeded in reducing tax evasion through foreign accounts?

Abstract The Foreign Account Tax Compliance Act (FATCA) spurred an unprecedented increase in the IRS’s ability to obtain information about assets held and income earned by US persons in foreign financial accounts, which were especially prone to illegal tax evasion. We review the evidence on FATCA’s efficacy at reducing tax evasion through foreign accounts and provide additional, longer-term evidence. We then discuss potential avenues for avoiding FATCA reporting. We also highlight other consequences of FATCA and provide exploratory analyses pointing to the use of the United States as a tax haven for foreign investors. We conclude with policy recommendations and suggestions for future research in areas where more analysis is needed.

FINANCE REFLECTED BY FUNHOUSE MIRRORS

Money is money, securities are securities, and banking is banking. Their fundamentals are not changed by whether technology rails are centralized (classic) or pseudo-decentralized (virtual assets) – the song remains the same. As such, this paper does not reinvent the wheel on why we should regulate cryptoasset centralized exchanges (CEXs), as there is enough bibliography from today to the XVII century to go around on that. Instead, we focus on how to regulate the CEXs, which comes into play in a world where their distributed ledger technology (DLT) rails are off-the-grid and hinder regulators from: (i) collecting market data (information asymmetry); and (ii) practical enforcement (technology/operational asymmetry). After revising current regulatory practices from various countries, we identify grounds for a practical approach – we propose that regulators might enforce full trading/financial intermediation obligations on the CEXs by enacting an indirect regulation/gatekeeper scheme, as inspired by the U.S. Foreign Account Tax Compliance Act (FATCA). In this model, regulators would restrict traditional institutions (i.e., banks, broker-dealers, clearings, funds) from transacting with CEXs which do not provide adequate evidence of material compliance with their trading/financial intermediation obligations. On a final remark, we narrate a growing movement which aims to insulate non-compliant crypto from the financial systems altogether, avoiding risks of contagion.

The Extent to Which Financial Institutions Comply With The US FATCA Law


 
 
 
 
 
 
 
 
 
 This scientific article explores the challenges and risks faced by Iraqi banks in complying with the Foreign Account Tax Compliance Act (FATCA). The study aims to investigate the extent of compliance in Iraqi banks and examine the general framework of FATCA through document analysis and interviews with bank officials. The results reveal that while Iraqi banks encounter various challenges in adhering to FATCA, they are actively taking significant steps to implement the necessary changes. The study highlights the need for continued monitoring of compliance efforts and emphasizes the importance of adapting to the global banking system. The implications of this research underscore the crucial role of FATCA in preventing tax evasion and ensuring tax compliance among US taxpayers utilizing non-US financial institutions and investment vehicles abroad. This research contributes valuable insights for professionals in the field, policymakers, and researchers interested in understanding the impact of FATCA on the banking sector and its implications for global financial regulations.
 Highlights : 
 
 Challenges and risks faced by Iraqi banks in complying with FATCA.
 Active steps taken by Iraqi banks to implement necessary changes for FATCA compliance.
 Implications for preventing tax evasion and ensuring tax compliance in the global financial landscape.
 
 Keywords : FATCA Compliance, Iraqi Banks, Tax Evasion, Global Banking System, Financial Regulations
  
 
 
 
 
 
 
 
 
 

Counteracting offshore tax evasion: Evidence from the foreign account tax compliance act

This paper aims to investigate the effect of the Foreign Account Tax Compliance Act (FATCA) on the deposits held by US global banks through their branches located around the world. Using an unpublished dataset on deposits held by branches of US banks on a geographically unconsolidated basis, we find that the FATCA led to a reduction in deposits held in branches located in tax havens. We find that this effect is more severe in those jurisdictions signing a reciprocal exchange of information agreement. We also advance evidence in support of deposit shifting within the US banking system towards locations without a reciprocal intergovernmental agreement.

FATCA, CRS and Public BO registers: a report on the direction of travel—the next 12 months

Abstract The author represents a number of clients in ongoing litigation against the excessive nature of public registers of beneficial ownership, the US Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS). Cases are pending before the courts in Austria, Germany, Luxembourg and the UK. The question relating to the compatibility of public registers of beneficial ownership with individuals’ fundamental rights to privacy and data protection is currently before the Court of Justice of the European Union (CJEU). The European Union’s Advocate General has already issued his opinion and a judgment is expected in the coming months.

Legal Support For Automatic Exchange Of Tax Information According To The CRS Standard For Tax Residents Of Ukraine

The article deals with the issues of legal support and an integrated legal approach to the analysis and research of issues of provision, receipt, use of tax information in relation to individuals at the interstate level. The legal grounds for the current procedures for the exchange of tax information in Ukraine and the Hellenic Republic, the existing legal possibilities for obtaining tax information on possible tax residents of the respective countries have been determined.
 The author analyzes the powers of banks and other financial structures to obtain tax information, the legal responsibility of taxpayers, lists of financial structures that must take part in the receipt and transmission of such information are determined.
 An analysis of the implementation of the Multilateral Convention on Cooperation between Competent Bodies on the Automatic Exchange of Information According to the CRS (Common Reporting Standard) standard in Ukraine and Greece shows the need for legal mechanisms and legislative actions in Ukraine to launch multilateral automatic exchange of tax information on CRS standard. Specific complexes of legal actions for the implementation of multilateral automatic exchange of tax information according to the CRS standard in Ukraine are proposed.
 The proposed implementations of automatic exchange of tax information will allow the regulatory authorities to fully implement the policy of objective and transparent administration of taxes from income received outside Ukraine by tax residents of Ukraine. In fact, when such an exchange functions, the regulatory authorities will have the same information as inside the country and use it for the correct administration of taxes. This approach will help implement the principles of fairness in the payment of taxes.
 The effectiveness of such an exchange of tax information is confirmed by the results of the implementation in Ukraine of the FATCA (Foreign Account Tax Compliance Act) on tax reporting on foreign accounts, which was adopted to combat tax evasion by US residents and is already in force in Ukraine for tax residents of Ukraine in USA and US tax residents in Ukraine.

Transparency and Tax Evasion: Evidence from the Foreign Account Tax Compliance Act (FATCA)

ABSTRACTWe examine how U.S. individuals respond to regulation intended to reduce offshore tax evasion. The Foreign Account Tax Compliance Act (FATCA) requires foreign financial institutions to report information to the U.S. government regarding U.S. account holders. We first document an average $7.8 billion to $15.3 billion decrease in equity foreign portfolio investment to the United States from tax‐haven countries after FATCA implementation, consistent with a decrease in “round‐tripping” investments attributable to U.S. investors’ offshore tax evasion. When testing total worldwide investment out of financial accounts in tax havens post‐FATCA, we find an average decline of $56.6 billion to $78.0 billion. We next provide evidence of other important consequences of this regulation, including increased expatriations of U.S. citizens and greater investment in alternative assets not subject to FATCA reporting, such as residential real estate and artwork. Our study contributes to both the academic literature and policy analysis on regulation, tax evasion, and crime.

Tax Evasion and Market Efficiency: Evidence from the FATCA and Offshore Mutual Funds

Using the Foreign Account Tax Compliance Act (FATCA) as an exogenous shock that reduces the tax advantages of offshore funds sold to U.S. investors, we document that affected funds significantly enhance their performance as a response. This effect is stronger for funds domiciled in tax havens and for skilled funds with low flow volatility. Moreover, in generating additional performance, FATCA-affected funds also increase the price efficiency of their invested stocks. Our analysis has important normative implications in showing that curbing offshore tax evasion could help improve efficiency in both the global asset management industry and the security market

Applying Blockchain Technology to Cross-Border Tax Reporting

Current reporting schemes for cross-border taxation are not completely fraud proof. Both the OECD’s Common Reporting Standards (CRS) and the US’s Foreign Account Tax Compliance Act (FATCA) allow tax evaders to hold assets abroad outright untaxed, or further allow for participation in schemes that can lead to tax manipulation, such as citizenship or residency by investment schemes (CBI/RBI). Besides closing these loopholes in the legislation, this paper proposes a blockchain solution. The proposed blockchain model will be derived from an existing blockchain solution to VAT fraud proposed by Ainsworth, Alwohaibi, and Cheetham. The blockchain specifically envisioned for tax reporting in this paper would be permissioned and controlled by a central authority, in order to regulate access. Zero knowledge proofs (ZKP) would be utilised to keep computational space and data private between jurisdictions participating on the shared distributed ledger. This blockchain solution could not only bring tax reporting into real time while increasing tax collection and transparency, but also automate a fairly complicated and bureaucratic process. However, implementation of such a process is costly and should be weighed against each jurisdiction’s national policy needs. Moreover, such a solution is not practical unless tax reporting is fully digitalised. A blockchain solution may have varied results on horizontal equity conditions within a nation, but it will not increase vertical equity. Finally, sovereignty is one major issue this paper is highly aware of when proposing a global solution to tax reporting. Because of ZKP and the fact that jurisdictions can opt-in, this paper does not foresee a diminishing of any jurisdiction’s national sovereignty.

The Big Bang: Tax Evasion After Automatic Exchange of Information Under FATCA and CRS

ABSTRACT After decades of ineffective attempts to fight tax evasion, the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) recently implemented the first encompassing international exchange of tax-related information on an automatic basis. This is an important development because tax evasion contributes to rising socio-political inequality and political sovereignty losses. This article assesses the treaties’ impact on tax evasion by conducting a difference-in-difference analysis of cross-border asset data. The results show that the treaties are successful. Household assets in tax havens that are not hidden behind corporate identities are estimated to be 67 per cent lower than they would have been without automatic exchange of information. Furthermore, this reduction is not offset by an increase in treaty circumvention using identity concealment or asset shifting to non-compliant jurisdictions. FATCA and CRS thus implement the first effective international cooperation against tax evasion. The results imply that political globalisation is capable to mitigate the political sovereignty losses and rise of inequality caused by economic globalisation.

The BRICs and International Tax Governance: The Case of Automatic Exchange of Information

ABSTRACT This article investigates the BRICs’ involvement in the adoption of Automatic Exchange of Information (AEoI) by the G20 and the Organisation for Economic Cooperation and Development (OECD) as a major breakthrough in the global fight against tax evasion. Our main questions concern the BRICs’ willingness to accept AEoI, and their agreement to the Western-dominated OECD as its institutional forum. First, we examine the domestic drivers for BRICs’ participation, as their statist model of capitalism reveals strong disincentives to join this regime and the fact that the budgetary consequences of the global financial crisis were less severe than in Western states. We argue that their agreement on AEoI results more from their persistent balance-of-payments vulnerability to illicit capital than from fiscal weakness, while also discussing the possibilities for mock compliance. Second, we review the role of the non-reciprocal US foreign account tax compliance act (FATCA) in shaping the BRICs’ preference for a multilateral AEoI-regime centred around the OECD’s Common Reporting Standard (CRS). Last, we show that the BRICs’ acceptance of the OECD resulted from pragmatic interests and receiving ownership over the process, together with the absence of coercive mechanisms within the CRS-regime that could fundamentally undermine their sovereignty in this domain.

The Effect of the FATCA Withholding Tax on US Investment Abroad

This article is based on a study of the effects of the Foreign Account Tax Compliance Act (FATCA) on US investment abroad. It provides evidence suggesting the possibility of a positive correlation between FATCA participation and US investment abroad due to the withholding tax on payments to foreign financial institutions in non-participating jurisdictions.

Considering "Citizenship Taxation": in Defense of FATCA

Inspired by Ruth Mason’s recent article, Citizenship Taxation, which reaches a general conclusion against citizenship taxation, this Article also questions citizen taxation under the same normative framework, but with a particular focus on efficiency and administrability, and takes a much less critical stance towards the merits of citizenship taxation. First, neither citizenship taxation nor residence-based taxation can completely account for the differences between residents’ and nonresidents’ ability to pay taxes under the fairness argument. Second, the efficiency argument, that citizenship taxation may distort both Americans’ and non-Americans’ citizenship decisions, is not convincing. The American citizenship renunciation rate is not particularly serious compared to other countries, and it is U.S. immigration law, not U.S. tax law, that should be blamed for obstructing highly skilled and educated immigrants. Third, despite enforcement difficulties abroad under the administrative argument, determining residence by considering all facts and circumstances in residence-based taxation would be worse than the bright-line citizenship criterion in citizenship taxation.After discussing the competing normative arguments on citizenship taxation, this Article aims to defend the administrability of citizenship taxation in conjunction with new reporting obligations. Individual taxpayers’ obligations to file Foreign Bank Account Reports (FBAR) or report under the Foreign Account Tax Compliance Act (FATCA) are not seriously onerous. The fact that citizenship taxation along with FBAR and FATCA enhances global transparency further supports the case for citizenship taxation.

Should Taxpayers Have Access to the International Tax Arbitration Procedure?

Globalization has subjected corporations to multi-jurisdictional tax systems. As a result, cross-border entities are exposed to the possibility of being audited and undergoing tax adjustments more than once for their transactions. In addition, various states’ measures — such as Tax Information Exchange Agreements (TIEA) and the Foreign Account Tax Compliance Act (FATCA) — have promoted international cooperation, thereby allowing tax authorities to have access to a vast volume of data. The risk of double taxation has greatly increased due to the multi-jurisdictional authorities’ easy access to data. To address and balance the overlap of jurisdictions in tax matters, states are signing bilateral and multilateral treaties consenting to mandatory and binding tax arbitration, thereby expanding states’ mutual agreement procedure “MAP,” a historic competent authority negotiation process. However, taxpayers are not part of the arbitration process. The focus of this analysis is on demonstrating the benefits of taxpayers’ access to the state-to-state MAP arbitration procedure, which was intended to provide taxpayers relief from double taxation.

An update on Hong Kong’s exchange of information developments and engaging with BEPS

ABSTRACTThe Hong Kong Special Administrative Region (HKSAR) implemented automatic exchange of information (AEOI) with the Inland Revenue (Amendment) (No. 3) Ordinance 2016 coming into effect on 30 June 2016. This development is one of the latest phases in the reform of the HKSAR’s exchange of information capability, and is an important issue as AEOI ‘challenges’ the HKSAR’s approach to privacy of information. AEOI follows earlier legislative reform to permit the HKSAR to enter into tax information exchange agreements (TIEAs), and the signing of a Model 2 intergovernmental agreement (IGA) under the United States’ (US’s) Foreign Account Tax Compliance Act (FATCA). The HKSAR has been actively engaged in the Group of Twenty (G20)/Organisation for Economic Co-operation and Development’s (OECD’s) Base Erosion and Profit Shifting (BEPS) initiative, particularly as an Associate Member that has enabled it to facilitate implementation of the relevant BEPS Action Plans in both the HKSAR and internationally. Collectively AEOI and BEPS have ‘opened up’ the HKSAR to greater international scrutiny and will introduce greater complexity into the HKSAR’s tax system. This paper briefly reviews the historical developments in information exchange in the HKSAR, focussing on the implications of AOEI and BEPS developments for the HKSAR, with some preliminary thoughts as to what the future may look like for businesses operating in the HKSAR.

Marketing non-US private equity funds in the United States: a roadmap through the various regulations and tax implications

PurposeTo discuss general legal considerations for non-US private equity sponsors who seek to market their funds to US institutional investors.Design/methodology/approachExplains relevant aspects of US securities laws, commodity exchange laws, pension and employee benefit plan laws, federal income tax laws, and the Foreign Account Tax Compliance Act (FATCA).FindingsThe evolving US regulatory regime necessitates careful planning and thorough knowledge of relevant laws and regulations to effect a successful US marketing effort.Originality/valuePractical guidance from experienced investment funds and tax lawyers.

How May the United States Leverage its FATCA IGA Bilateral Process to Incentivize Good Tax Administrations among the World of Black Hat and Grey Hat Governments? A Carrot & Stick Policy Proposal

Professor William Byrnes examines whether it is prudent for taxpayers to trust the governments of the 117 countries that scored a fifty or below on Transparency International’s corruption index. The complete information system invoked by the Foreign Account Tax Compliance Act (FATCA) encourages, even prolongs, the bad behavior of black hat governments by providing fuel (financial information) to feed the fire of corruption and suppression of rivals. Professor Byrnes recommends that the United States leverage a “carrot-stick” policy tool to incentivize bad actors to adopt best tax administration practices.

Impact of FATCA on Israeli Trust Structures

Israel is going to exchange financial account information with the USA and, eventually, other countries as well. As a result, it is imperative that all trusts be certain of their status under the Foreign Account Tax Compliance Act (FATCA). On 1 August 2016, the Finance Committee confirmed Israel’s Regulations (‘Regulations’) implementing the FATCA Intergovernmental Agreement (IGA) signed between Israel and the USA in 2014. A request was filed with the Israeli High Court of Justice in January 2016 seeking to prohibit the Israeli tax authorities from sharing details of financial accounts with the US Internal Revenue Service (IRS). The Court denied that request on 12 September 2016. As a result, Israeli trust structures, if they have not done so already, must determine which entities in the structure have FATCA registration, due diligence, and reporting requirements.

Transparency and Tax Evasion: Evidence from the Foreign Account Tax Compliance Act (FATCA)

We examine how U.S. individuals respond to regulation intended to reduce offshore tax evasion. The Foreign Account Tax Compliance Act (FATCA) requires foreign financial institutions to report information to the U.S. government regarding U.S. account holders. We first document an average $7.8 billion to $15.3 billion decrease in equity foreign portfolio investment to the United States from tax‐haven countries after FATCA implementation, consistent with a decrease in “round‐tripping” investments attributable to U.S. investors’ offshore tax evasion. When testing total worldwide investment out of financial accounts in tax havens post‐FATCA, we find an average decline of $56.6 billion to $78.0 billion. We next provide evidence of other important consequences of this regulation, including increased expatriations of U.S. citizens and greater investment in alternative assets not subject to FATCA reporting, such as residential real estate and artwork. Our study contributes to both the academic literature and policy analysis on regulation, tax evasion, and crime.

Cross-border tax evasion under a unilateral FATCA regime

Cross-border tax evasion has emerged in recent years as a central issue in tax enforcement. Traditionally, the legal regime governing cross-border tax enforcement was based on information exchange upon request. In 2010, the US Congress enacted the Foreign Account Tax Compliance Act (FATCA), which seeks to induce foreign financial institutions (FFIs) to participate in a global regime of automatic information reporting of the income of US residents to the US government. This paper presents a simple theoretical model of cross-border investment that analyzes the consequences of this (unilateral) FATCA regime. The model emphasizes cross-border investors' (heterogeneous) intrinsic motivation to comply with tax law, as well as the impact of information reporting requirements on the cost of providing financial services. In FATCA-compliant equilibria (in which FFIs report information to the US government) FFIs face a higher cost of providing financial services, increasing the fees charged to their accountholders. Consequently, tax-compliant behavior – such as investing via their domestic financial sector – becomes more costly for foreign residents. Under certain conditions, a unilateral FATCA regime causes increased cross-border tax evasion among residents of foreign countries. This result is robust to various extensions.