The Foreign Account Tax Compliance Act (FATCA) took another giant leap forward towards enforcement from July 1 after a US Federal Judge rejected a law suit calling for a repeal of the act.
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FATCA is a global network of agreements between the US Treasury and foreign governments and financial institutions to report the financial holdings of US taxpayers in overseas accounts to the Internal Revenue Service (IRS).
The law calls for nearly a million financial institutions in the US and worldwide to identify customers of countries that are signatories to FATCA. The information is then swapped between the IRS and overseas tax authorities to track down taxpayers who have failed to fully declare their offshore income and assets.
The legal challenge against FATCA was brought by the Florida Bankers Association, heading a group of bank and financial lobbying organisations based in Texas and Florida.
They claimed the rules infringed privacy, tied up banks in costly bureaucracy and would discourage individuals from holding their cash and assets in American financial institutions.
Speaking against the lobbyists, the US Justice Department argued that FATCA was necessary to tackle tax evasion, money laundering and criminal activities across the world and that the network was supported by many major financial centres.
Judge James Boasberg, of the US District Court for the District of Columbia, rejected the legal challenge from the lobbyists in a lengthy 23-page ruling.
Where the challenge goes from now is unknown as lawyers for the groups have made no comment about appealing or withdrawing their suit.
“The judge’s ruling is an important step in our commitment to work with our treaty partners to eliminate cross-border tax evasion,” said Assistant Attorney General Kathryn Keneally, head of Justice’s tax division.
So far, around 18 countries, including Britain, France, Italy and Japan have signed up to FATCA and the US Treasury is thought to be in negotiations with up to another 50 major financial centres about joining the network.
Financial institutions in nations that do not sign an agreement have to register with the IRS. Around 700,000firms are expected to enrol online.
Taxpayers and financial institutions who fail to observe the FATCA rules face financial penalties and time behind bars.
The law is one of the jewels in the crown of President Barak Obama’s time in office. He has unflinchingly supported FATCA against significant opposition both at home and overseas.
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