A look at FATCA (Foreign Account Tax Compliance Act)
The United States global tax law; Foreign Account Tax Compliance Act (FATCA), came into effect on 1st July 2014.
The FATCA is at last here after a period of 4 years, initially developed in 2010 as an approach to make America’s corporations and private individuals stop evading America’s taxes by depositing their money into their accounts in foreign countries. The act requires foreign banks and foreign financial institutions to inform about every American who owns an account and even to hold back money from those particular clients who are suspected of tax evasion to the Internal Revenue Service (IRS) in the United States.
The IRS and Treasury have important FATCA projects to complete. The IRS still has to bring up to date its withholding agreements for Withholding Foreign Trusts and Withholding Foreign Partnerships to depict FATCA, which it has guaranteed for July. In addition, there are numerous areas where the IRS and Treasury still have to make alterations as promised to the FATCA policies.
For over a year, America has been busy negotiating; information sharing policy with countries around the globe, and up till now, 77,000 financial institutions and 86 countries have registered for FACTA. The countries which have already reached official or opening agreements with America also include China and Russia.
In spite of the alteration period rules, United States and Foreign Financial Institutions withholding agents have yet to put up efforts to put the FATCA rules as of July 1, 2014 into practice. The efforts consist of training sessions with employees, instruction manuals and modifications to policy manuals that would make the workforce aware of the requirement to file customers’ FATCA status on opening accounts. Furthermore, the withholding agents of Foreign Financial Institutions and United States will be made to keep an account of the efforts made in a file for trouble-free access. As the IRS agents may ask for evidence of a party’s efforts in good faith to operate in accordance with FATCA.
Lastly, provided that a withholding agent selects not to be indulgent regarding FATCA documentation, parties should in general consider to be required to give the documentation to the mediator.
Collecting tax is one of the most common ways of increasing revenue for a nation. FATCA grew out of a contentious rule; that the citizens of America, even if they are permanent residents abroad are taxed on their all-inclusive, global income despite of where they live. It also helps a country to keep check on spending and saving capabilities of their citizens. Hence, it could be highly important for the economic survival of a nation and for the better living standards of their citizens. If not financially sound, a country risks its citizens living in an unsecure environment. Therefore, it is important for governments to properly manage their tax processes in order to avoid any lack of management.