FATCA Spells End Of Banking Secrecy

Lawyers are predicting the end of banking secrecy around the world as increasing numbers of countries bring in legislation to satisfy voters angry at claims of companies and the wealthy dodging billions in tax.

The moves are being led by the US with the Foreign Account Tax Compliance Act (FATCA) which forces financial institutions in signatory countries to reveal the details of US taxpayers holding more than $50,000 in assets.

Several countries, most notably the UK, have followed the US with their own version of FATCA.

Now delegates to a conference staged by Thomson Reuters have heard that the legal moves are the ‘thin end of the wedge’ with governments increasingly desperate to increase its tax-take to resolve budget deficits.

The same governments are also responding to voters’ anger at corporate tax avoidance and rich people using loopholes to hide money and assets in offshore bank accounts.

Global influence

Delegates heard that before tax authorities could increase the revenue, government’s had to break banking secrecy and the US is the first country which has enough influence around the world to push through a new tax initiative.

Deborah Annells, of tax planners AzureTax, told the conference that the main aim of FATCA was to stop financial jurisdictions operating behind a veil of secrecy.

She added that one of the strongest reasons for compliance with FATCA was that the jurisdictions which refused to cooperate would find themselves becoming increasingly isolated.

She added: “I think banking secrecy is dead because every institution now has to report on every account or security they have and eventually they will have to report on other nationalities not just for Americans.”

Fellow panellist Philip Rodd, a partner at Ernst and Young, agreed that FATCA brings financial secrecy to an end as European countries quickly following suit.

Tax dollars

He added: “We are now moving towards greater tax transparency and there are a number of reasons for this including, particularly in western countries, the need for tax dollars.

“There is also a growing public backlash against individual and corporate tax evasion so it’s more politically expedient to pass this type of legislation.

The conference heard that the move towards transparency is gaining favour in the Asia Pacific and while no one can be sure of what China is planning; many experts believe they will endorse FATCA in some shape or form; other countries are already talking to US authorities.

Among them are Hong Kong and Singapore, as well as Australia, who have signalled their intention to support FATCA.

However, Mr Rodd pointed out that some Asian countries will inevitably make reciprocal requests on account holders from financial institutions in Europe and the US and this could cause a future problem.

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