The Foreign Account Tax Compliance Act (FATCA) has now been in force for about a year now. Its goal: to prevent millions of U.S. taxpayers, and the global financial institutions that serve them, from evading U.S. tax on income and assets held outside the United States.
As our Terry Ritchie explains in an article at ADVISOR.CA, the law affects seven million Americans who live or work abroad, including 1 million in Canada. “U.S. persons” must file annual tax returns on worldwide income and disclose interests in accounts or other foreign entities outside of the United States. And under FATCA, non-U.S. financial institutions have to report certain information to IRS about U.S. persons’ bank, investment and other accounts.
The New York Times has documented examples of unfavorable treatment of U.S. persons by FFIs in Europe and elsewhere. But Canadian foreign financial institutions (FFIs) don’t appear to have turned away U.S. persons or closed their accounts due to concerns over FATCA.
FATCA still faces challenges, including a Canadian lawsuit charging that the cooperation agreement between that country and the United States violates the Canadian Charter of Rights. And in the United States, Congressional Republicans may look to repeal the law if a Republican succeeds Barack Obama as president.
But FATCA may also be applied on a global scale—in what’s being dubbed GATCA. The Organisation for Economic Co-operation and Development is promoting it as a way to curb tax evasion through automatic exchange of information between FFIs around the globe.