Political tension could rise if it becomes widely known that under diplomatic agreements instigated by the U.S. targeting tax evasion, U.S. financial firms will be required to share information on foreign-born U.S. residents with foreign governments.
According to the 2010 Foreign Account Tax Compliance Act, foreign financial institutions will be required to disclose information on these accounts to the Internal Revenue Service, who will then use that information to catch U.S. taxpayers with overseas bank accounts.
The U.S. has also agreed to share information on some U.S. account holders with foreign governments, as other countries have a vested interest in identifying their own tax evaders, specifically those who might seek shelter in the U.S.
"The U.S. has generally said ... that it is willing to reciprocate," said Phil Garlett, a tax attorney with Burt, Staples & Manner LLP, at a New York tax conference in October 2013. "It'll be interesting to see how that works through the political process."
Those who specialize in FATCA say the ambitious tax evasion crackdown is a clear indicator of the future of global information-sharing by governments on the financial status of its citizens as the flow of money becomes internationalized. The OECD released a global framework in February to be implemented in 2017 with the specific purpose of sharing financial data through a global exchange.
The U.S. government has agreed to provide information on investment income, personal names and addresses, and account numbers for many U.S. bank accounts. Though the IRS already collects this information, under FATCA, the U.S. will now share this data with foreign governments. Treasury officials have signed agreements with 22 nations thus far, with many more on the way.
"If the U.S. is successful in this, and it gets reciprocity under the agreements ... the political firestorm would be enormous," Allison Christians , a tax professor at McGill University in Montreal who opposes FATCA, told IBTimes.
"It's about financial surveillance.... Each and every time it has come to the U.S. Congress, on whether the U.S. should share information with other countries, on even close to a level they're asking about right now, it's been defeated," she continued. "On the grounds that there was nothing to be gained by the U.S. in sharing such information."
Though several states are attempting to battle the law, an actual repeal of the legislation seems unlikely, according to several industry experts. Banks have already gone too far, spending millions in compliance costs already, while Treasury officials continue to get businesses educated on new procedures.
Even with all these changes in place, some wonder if all of these expenses are worth the hassle.
"FATCA will not stop Americans from being able to hide money off shore," Bob Mazur, a private investigator who used to work on criminal investigations for the IRS, wrote to IBTimes. "It will just involve their getting more comfortable with an additional layer to further block transparency."
"In many cases, the beneficial owner [of funds] doesn't appear on any records," he added.
While many oppose the new legislation, there are experts in the industry who support FATCA.
"FATCA will be highly effective," said Kathleen Celoria, executive director for DMS Offshore Investment Services , a Cayman Islands-based funds adviser.
"It's been a very well-orchestrated piece of legislation.... You will not be able to operate as a non-compliant foreign financial institution in a FATCA world," she said. "You will be a dinosaur and you will be phased out. You'll continue to see global markets exchange more information...We don't expect for that to stop."
Estimates suspect the annual loss at $100 billion due to offshore tax evasion. The law will only apply to overseas accounts containing more than $50,000.
Source: Rudarakanchana, Nat, "Political Backlash Over Privacy Could Come As Tax Evasion Reform (FATCA) Speeds Up," IBTIMES, February 25th, 2014