The French and US tax authorities are in a war of words over collecting financial information about 40,000 accidental Americans living in the country.
The row centres around the Foreign Account Tax Compliance Act (FATCA).
France is a signatory to an agreement to give the US Internal Revenue Service personal and financial data about accounts and investments controlled by US taxpayers.
The information is compared with tax filings so the IRS can check the right amount of tax is paid on income and investments.
However, although some countries started passing data in 2014, the IRS offered France a period of grace before reporting that ends in January 2020.
Stern reminder from Washington
Now, the IRS has sent the French government a stern reminder that financial reporting starts next year – and warns that if banks withhold data, they face sanctions and fines.
FATCA is a US law that demands foreign financial institutions pass data about their American customers to the IRS.
But the controversy in France and other countries is the US tax system deems anyone with a connection to the States is a taxpayer even if they only lived in the country for a short time as a child. And as a US citizen, they are obliged to pay tax on their worldwide earnings
These taxpayers with a tenuous link are called ‘accidental Americans’ and many do not realise they are subject to paying taxes in the US.
Unforeseen consequences of FATCA
In France, a group recently challenged the IRS and FATCA in a court, but lost the case on the basis that FATCA did not discriminate against them.
Besides the reporting obligations on financial institutions, FATCA had had some unforeseen consequences.
The law is reported to have raised more than $10 billion in ‘lost’ tax since 2014, but many foreign banks have closed accounts for their US customers, called in loans and cut off credit so they do not have to make a FATCA report.
Many accidental Americans have handed back their passports and renounced their US nationality to escape from the clutches of the IRS.
France has 7,221 financial institutions registered under FATCA.