WASHINGTON (AFP) – The US Treasury has opened a new front in its war against offshore tax evasion. But for some it amounts to financial imperialism.
Americans with legitimate bank accounts outside the country, and foreigners working in the United States, have begun receiving letters from their banks in Paris, Tokyo, Johannesburg and elsewhere, informing them that their account information is being turned over to the US tax authority.
It is the culmination of a years-long effort by the Treasury, straining to close the chronic US budget deficit, to get to unreported incomes taxable under US law that get hidden away in bank accounts around the world.
For some the new Foreign Account Tax Compliance Act (FATCA) is an outrage: their foreign banks are now handing over their confidential information to the US government.
Under newly inked treaties with the United States, some 100,000 foreign financial institutions in more than 100 countries must report to the Treasury on the accounts of any so-called “US persons” – a US citizen, or anyone with an immigrant’s “green card” or a US work permit.
“That’s shocking, how can they do that?” said Helene, a French woman working in Washington after receiving a letter like that from her bank back home. She did not want her family name used.
For some time Americans with bank accounts abroad have been required to report them to the Treasury’s Internal Revenue Service (IRS), in case they have US-taxable income in them.
But FATCA now puts the burden on foreign financial institutions to do the reporting. If they do not, the Treasury threatens a 30 per cent withholding tax on the bank’s US earnings.
Official estimates say FATCA will uncover enough hidden assets and income to generate some $8 billion in additional tax payments to the US government over 10 years.
Richard Harvey, a tax law professor at Villanova University who helped craft the FATCA rules, estimates the take could be “more like $20 to $30 billion”.