Grumbling about the US Foreign Account Tax Compliance Act (FATCA) is growing around the world.
After a Canadian pressure group launched a legal challenge against the government signing a FATCA treaty with the USA, now Russian regulators are hitting out against the tax reporting law.
FATCA is aimed at making foreign financial institutions opening their books to the US Internal Revenue Service (IRS).
The law, which came into force on July 1, 2014, demands all offshore banks and financial institutions that are controlled by US taxpayers must report details of bank account holders and investors.
If they are US resident, any balances of more than $50,000 must be declared, while the limit is $200,000 for expats.
Serious risk to Russian economy
Financial institutions who fail to report the financial affairs of US taxpayers face fines and even exclusion from the US banking system.
Yury Chikhanchin, head of Rosfinmonitoring, Russia’s money laundering regulator, claims FATCA is unlawful.
“FATCA makes any financial institution in Russia or elsewhere tax informants for the US tax service,” he said.
“Other countries are planning similar tax laws and these regulations pose a serious risk to the Russian economy.”
Several Russian ministers and officials have spoken out against FATCA in what is widely believed to be a thinly veiled protest against US economic sanctions against Russia in retaliation for the annexation of The Crimea and Moscow-backed militants trying to set up an independent state in The Ukraine.
“Such laws should only be acceptable to Russia if they are bilateral,” said Chikhanchin.
Moscow rebuffed by US
However, Moscow made a last-minute bid to sign up to FATCA after months of dithering, but was rebuffed by Washington.
Although more than 100 countries have agreed FATCA treaties with the US, and most allow a two-way exchange of tax and financial information, the US sent the Russian finance minister home without putting to pen to paper on a deal with Moscow.
The result is Russian financial institutions have to spend millions of roubles setting up their own information exchange channels with the IRS or risk a 30% withholding tax on their US income.
This was only allowed after the government hastily passed a law lifting data protection rules to let Russian financial institutions to pass information to the IRS.
So far, 865 Russian financial institutions have signed up to FATCA.