The Foreign Account Tax Compliance Act (FATCA) represents a powerful response by the United States to flagrant offshore tax evasion. Although the new reporting regime has been criticized as unilateral and extraterritorial, this short article, prepared for a symposium hosted by Pepperdine Law Review, shows that multilateralism and cooperation so far have been the keys to implementing FATCA. In addition to spurring bilateral Intergovernmental Agreements (IGAs) to implement FATCA, and copycat legislation in other jurisdictions, for many countries, the FATCA reporting requirements represent an aspirational new global standard for automatic exchange of information – one that would supplement, if not replace, information exchange on request.The following are excerpts (footnotes omitted) from the article as published in Tax Notes (haven't compared to the draft which I link above). I present them in the outline format of the article, omitting most of the text (omissions shown by * * * *) and sometimes adding information shown by brackets [ ].
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B. The Rise of FATCA
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3. Criticisms [of FATCA]
[Those who don't like FATCA will find some reinforcement in this succinct summary of criticisms]
C. From Unilateralism to Multilateralism
While complaints about the unilateralism and extraterritoriality of FATCA are not without merit, FATCA has enhanced multilateral cooperation in combating tax evasion, and it has spawned similar legislation and treaties in other jurisdictions.
1. Model IGAs.
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2. Son of FATCA.
[This discusses other countries' FATCA-like legislation or treaties.]
3. FATCA as new global standard.
In addition to the jurisdictions emulating FATCA, many jurisdictions view FATCA as an opportunity to establish a global standard for automatic information exchange. For example, in discussing its new information sharing agreements with its crown dependencies, the U.K. government stated that:
the U.K. was quick to see the potential . . . to embed a new international standard in the exchange of information based around the FATCA model. This would provide a step change in the ability of the international community to tackle tax evasion, while minimizing costs for governments and business (who are already investing in the systems and processes necessary to comply with the U.S. FATCA legislation and the subsequent intergovernmental agreements to implement it).
The United Kingdom announced that, in addition to its crown dependencies, it would seek to negotiate similar automatic information exchange agreements with other jurisdictions, and that these contemplated agreements, along with its own IGA with the United States, "all form part of a drive to embed a new single international standard in the automatic exchange of tax information." Likewise, in May 2013, 16 EU member states called for a "new global standard for automatic exchange of information to tackle tax evasion, based on the U.S. FATCA legislation." Most importantly, in early 2014, the OECD announced, and the G20 approved, a new Common Reporting and Due Diligence Standard for use by countries wishing to exchange information automatically. The OECD describes this standard as drawing "extensively on the intergovernmental approach to implementing FATCA . . . with a view maximizing efficiency and reducing cost for financial institutions."
4. Multilateral information exchange.
FATCA also seems to have precipitated or accelerated efforts at multilateral information exchange. For example, the G-5 announced that they will exchange information multilaterally based on the U.S. model IGA. Likewise, official statements from the EU cast FATCA as providing "a unique opportunity to move from a series of bilateral agreements to a multilateral system." Indeed, unilateral FATCA ultimately may help improve the leaky EU savings directive. Veto-holding EU member states attempting to preserve what was left of banking secrecy in their jurisdictions have blocked amendments to the directive. Members of the EU Parliament, even when they vehemently oppose FATCA, seem to agree that FATCA has galvanized the EU into action. For example, at a public parliamentary hearing on FATCA, European Parliament member Sophia in 't Veld (Netherlands) stated, "The fact that we're welcoming the application of third country law on our territory is only a reflection of the weakness of the European Union. We only have ourselves to blame because we were unable to adopt our own policies."
If FATCA represents a new global standard for information exchange, that standardization would mitigate the concern by banking associations that they are being asked to shoulder an extraordinary administrative burden concerning only Americans. If every country adopted a FATCA-like regime, FFIs would no longer be looking for American needles in a global haystack. Standardization according to the FATCA model would mitigate FFIs' concerns that they could be subject to a variety of conflicting reporting requirements imposed by different states. Likewise, IGAs and attendant legislative changes in FATCA partner countries resolve conflicts between FFIs' obligations under FATCA and their obligations under local law. In short, multilateralism and cooperation may be the key to successful implementation of what has been criticized as unilateral and extraterritorial U.S. legislation.
D. Unanswered Questions
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Fiscal crisis emboldened the United States to use access to its capital markets as an enforcement mechanism for securing information about domestic taxpayers from foreign institutions. And, in turn, the U.S. passage of FATCA emboldened some of our trading partners to rally behind a new standard of automatic information exchange. Thus, the initial outraged reactions to FATCA among private parties and government officials seem to be shifting to acquiescence by the FFIs, and at least some government officials view FATCA as an opportunity to strengthen their own offshore enforcement.