Implications of the Foreign Account Tax Compliance Act, FATCA

by Michael Diaz Jr. - Diaz Reus International Law Firm

IRS-FATCA WebsiteProtecting domestic revenue is just one of several reasons why G-20 nations are cracking down on tax havens. Other reasons include their desire to track the international flow of funds used for terrorist activity or money laundering. The United States has been pounding on tax havens for some time now. Notably, it recently enacted the Foreign Account Tax Compliance Act (FATCA), a statute—soon to go into effect—designed to combat offshore tax-evasion and recoup federal tax-revenues. A portion of the 2010 Hiring Incentives to Restore Employment Act, FATCA requires individuals to report their financial accounts held overseas and foreign financial institutions to report to the IRS about their American clients. 

Experts criticize the heavy-handed manner in which the U.S. has implemented these regulations. Countries with protectionist laws prohibiting disseminating account holders’ private information will have to rewrite those laws to if they choose to comply with new regulations. However, some countries are still reluctant to do so—the most recent example being Switzerland. There the principle of banking secrecy has formed the basis of its financial and banking success. After acknowledging that Swiss banks helped American account holders evade taxes, the U.S. pressured Switzerland to introduce a bill allowing Swiss banks to implement strict secrecy laws and release information relating to clients’ accounts. The Swiss Federal Assembly, however, has already rejected the bill once.

In those countries without such protectionist laws, individual financial institutions must make a choice between complying with FATCA and refusing to do so. Those that choose to comply should not delay preparing for the resulting operational modifications. They will have to review their existing accounts, update their computer systems to comply with FATCA recordkeeping and reporting requirements, draft new due-diligence policies, train staff, obtain tax declarations from customers, and make other adjustments to their daily business practices. As part of the compliance process, financial institutions are required to enter into a special agreement with the U.S. Internal Revenue Service (IRS), where the banks will undertake to report to the IRS on account holders who are U.S. persons, or foreign entities with substantial U.S. ownership.

As initially designed, FATCA significantly impacts the global banking business. Resulting annual U.S. tax revenues have been calculated at US $850 million, however, at the expense of high implementation and operation costs for financial institutions, which will most likely pass these along to their clients through higher fees. Moreover, the IRS has given banks a significant incentive to comply: Those banking institutions that do not enter into an agreement with the IRS to reveal their U.S. clients’ accounts will face a 30 percent withholding tax on all relevant U.S. sourced payments, such as dividends and interest paid by U.S. corporations. The same 30 percent withholding tax will also apply to gross proceeds from the sale of relevant U.S. property.

Some countries in Europe have complained about FATCA’s lack of reciprocity. Although the U.S. government has hinted that it is committed to reciprocal exchanges of information, the reality is that no U.S. law requires domestic financial institutions to provide the same level of information required under FATCA. Countries in Latin America and the Caribbean will most likely pressure the U.S. to negotiate the terms of those reciprocity requirements, if it wants FATCA to be signed in those regions. Surprisingly, though, the Treasury Department said on July 14, 2013, that, due to the overwhelming interest from countries worldwide in entering into agreements with the IRS to comply with FATCA, it would extend the start of the withholding and account due-diligence requirements for six months to allow more time to complete agreements with foreign jurisdictions. This will also provide foreign financial institutions time to comply with FATCA. Despite the delay, the FATCA registration website opened during August 2013. Financial institutions are now able to start testing it by entering information.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Michael Diaz Jr. - Diaz Reus International Law Firm | Attorney Advertising

Written by:

Michael Diaz Jr. - Diaz Reus International Law Firm

Michael Diaz Jr. - Diaz Reus International Law Firm on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.