The US Foreign Account Tax Compliance Act (FATCA) is a year old as thousands of banks and financial institutions across the world ready to make their first reports about cash and investments held by US expats.
Although the law was introduced as part of a raft of tax avoidance legislation in 2010, FATCA did not come into force until July 1, 2014.
Now, according to the Internal Revenue Service (IRS), almost 165,000 offshore financial institutions have signed up to give details of the finances of US expats to the tax authority.
The US government hopes to raise around $10 billion in unreported earnings from savings and investments held offshore by taxpayers.
FATCA impacts US resident and expat taxpayers alike.
Financial institutions must report any accounts holding $50,000 held in accounts controlled by US resident taxpayers.
For expats, the limit is $200,000.
Thousands of taxpayers who have not declared the income from offshore assets on their annual IRS returns are expected to be caught in the FATCA net.
The law has led to banks closing the accounts of US customers and some handing back their passports and taking on foreign nationality to protect their financial secrets.
More than 100 governments have also set up tax information sharing agreements under FATCA.
These agreements allow the IRS to send details of US financial holdings of taxpayers of other countries back to their home tax authorities.
An even bigger worry for expats is a new law dubbed GATCA – a global tax reporting standard ready for introduction by 2018 by the Organisation of Economic Cooperation and Development (OECD) nations.
Instead of reporting two-way traffic between the IRS and compliant tax authorities under FATCA, GATCA is a superhighway that will allow any country signing up to the agreement to transmit financial information to any other member of the network.
So far, nearly 70 countries have agreed to join the OECD network and more are in the approval pipeline.
The aim of both laws is to stop tax avoidance on a global scale.
“Soon there will be nowhere left for anyone not fully declaring the income and assets to their tax authority,” said an OECD spokesman.
“Tax avoidance deprives governments of much-needed cash flow to pay for services and to reduce their deficits, so everyone benefits from tax transparency.”
The OECD is also working to stop multinational companies from moving their money around the world to pay tax in friendlier countries with lower corporate tax rates.