FATCA Takes Effect as Russia Signs up
The US Foreign Account Tax Compliance Act (FATCA), America’s global tax law, takes effect from today, with Russia’s president, Vladimir Putin, a last minute signatory.
Putin’s agreement that Russian banks can send information about US tax payers to their native government comes after 77,000 financial institutions (FIs) and 80 countries registered for FATCA, which requires foreign banks to reveal American accounts holding over US$50,000.
The US and Russia were negotiating a FATCA deal until March this year, but Russia’s annexation of Crimea disrupted the talks. That meant that before this week Russian financial institutions (FIs) were facing the prospect of being frozen out of US markets.
Under the new regime, foreign financial institutions (FFIs) must report account numbers, balances, names, addresses, and US identification numbers. For US-owned foreign entities, they must report the name, address, and US taxpayer identification number (TIN) of each substantial US owner. In addition, US persons with foreign bank accounts exceeding US$10,000 must file an annual report of foreign bank and financial accounts (FBAR) by 30 June.
FATCA has attracted criticism from various quarters. Nigel Green, founder and chief executive of deVere Group, commented: “It is claimed by its proponents that this new tax act is designed to catch tax evaders who illegally shelter money offshore. This is a noble aim. But FATCA cannot possibly tackle this important global issue effectively due to its dragnet, untargeted approach.
“Instead what it does – because of its plethora of serious unintended adverse consequences – is to brand Americans who choose to live and/or work overseas as financial pariahs. US expats are now routinely rejected from FFIs, such as banks in their country of residence, because FATCA’s costly and onerous regulations mean Americans are now typically deemed more trouble than they are worth.
“Similarly, American businesses working in international markets are now often branded with a leprosy-like status. Clearly, this can only be detrimental to their global competiveness and could, in turn, hit American jobs and the long-term growth of the US economy – which would then, of course, have far-reaching consequences beyond the US.”