Tax Evasion and FATCA

Last updated on June 4, 2013

The Foreign Account Tax Compliance Act (FATCA), enacted by Congress in 2010, was introduced to curb tax evasion. Under FATCA, foreign financial institutions are required to share tax sensitive information about the financial accounts held by U.S. taxpayers in their country. Those U.S. taxpayers who hold a substantial ownership of interest in foreign entities also fall under FATCA.

The U.S. has been drafting agreements with the governments of various countries, including Switzerland and Germany, to make overseas financial transactions of U.S. taxpayers more transparent.

It is no secret that many wealthy individuals and multi-national companies use offshore bank accounts in tax havens to evade taxes in the U.S. A collaboration between the U.S. authorities and the authorities of various foreign countries will make it more difficult for U.S. taxpayers to hide their income overseas.

Switzerland has already entered into an agreement with U.S. authorities to disclose financial information of U.S. taxpayers who hold substantial sums of unaccounted money in Swiss banks. Many Swiss banks who were being investigated by the U.S. authorities have agreed to share information of taxpayers.

The U.S. has also signed an agreement with Germany to allow the sharing of financial information that will lead to a reduction in tax evasion and recover large amounts of revenue lost due to tax evasion.