More countries are gearing up to fall into line with the US Foreign Account Tax Compliance Act (FATCA).
The government in Romania is pressing Washington to start talks for signing an inter-governmental agreement after passing a vote earlier in the year.
The United Arab Emirates has also indicated that the government is ready to sign a FATCA tax information swapping agreement with the US.
Meanwhile, the Bank of Israel is urging the country’s financial institutions to sign up for FATCA through the US government’s online portal and not to wait for the government to sort out an inter-governmental agreement.
This is despite US taxpayers withdrawing up to $4 billion from Israeli banks during the past few months.
FATCA and Russia/Ukraine crisis
The central bank has ordered financial organisations to sign up to FATCA even if joining the tax avoidance network means losing customers.
Meanwhile, the stand-off between Russia and other countries over the annexation of Crimea could see the US taking sanctions against the banks of both countries when FATCA starts.
Russia had indicated an intention to sign FATCA, but the current crisis has left this on ice.
Ukraine has not yet signed up to FATCA, but doing so could be seen as tightening relations with the West against Russia.
Ukraine is also the source of food and manufactured goods for Russia, and a cut in the flow of imports could adversely affect the Russian economy.
FATCA is due to take effect in the US from July 1, 2014.
Foreign financial institutions will either have to hand over financial information about their US controlled accounts and investments to their national tax authority for passing to the Internal Revenue Service (IRS) in the States or directly report the information online to the IRS.
What is FATCA?
FATCA is aimed at identifying US taxpayers with bank accounts or investments worth more than $50,000 offshore.
Taxpayers will have to report their cash and investments via tax filings, which will be compared to the figures supplied by up to 770,000 banks worldwide.
The risk of an individual or financial institution failing to comply with FATCA is hefty fines, and for the financial organisation, including a 30% withholding tax on all transactions through US banks and even possible exclusion from the US banking system.
Around 40 countries have already signed FATCA pacts with the US, while another 20 are negotiating inter-governmental agreements.
Financial institutions in countries without inter-governmental agreements will have to deal directly with the IRS.
Yes indeed, let the 30% withholding games begin! July 1st is Canada Day, our country’s Independence Day. Ironically, it will also forever mark the day that the FATCA monster was unleashed and fully broke-out into the mainstream consciousness. It will most certainly be a train-wreck of unimaginable, global proportions, and it won’t take long at all to perceive its destructive effects on the world economy and international relations. FATCA may well become the biggest, most embarrassing debacle in US history, and that’s not an easy thing to surpass.