The Foreign Account Tax Compliance Act (FATCA) is a U.S. law that was enacted in 2010 to combat tax evasion by U.S. taxpayers who hold financial assets outside of the United States. The law requires foreign financial institutions and entities to report certain information about their U.S. account holders to the Internal Revenue Service (IRS). This includes information such as the account holder's name, address, and tax identification number, as well as the account balance and any income generated by the account.
FATCA applies to a wide range of financial institutions and entities, including banks, custodial institutions, certain types of investment entities, and specified insurance companies. Financial institutions and entities are also required to conduct due diligence procedures to identify their U.S. account holders and report any suspicious transactions.
FATCA is based on the principle of reciprocity, which means that participating jurisdictions agree to exchange information automatically with each other on an annual basis. To date, more than 100 jurisdictions have signed intergovernmental agreements (IGAs) with the U.S. to implement FATCA.
FATCA has been successful in increasing transparency and compliance with U.S. tax laws. It has helped the IRS to identify and recover unpaid taxes and has increased the amount of information available to tax authorities. Financial institutions and entities should ensure that they are aware of their obligations under FATCA and that they have the necessary systems and processes in place to comply with the regulations. Overall, both CRS and FATCA are important measures to combat tax evasion and promote transparency and fairness in the international tax system. Financial institutions and entities should be aware of their obligations under these regulations and take the necessary steps to comply with them.
In the international tax system, financial institutions and entities should ensure that they are aware of their obligations under the FATCA and that they have the necessary systems and processes in place to comply with the regulations.