Overseas banks are being ordered to collaborate with the US Treasury to help identity which of their customers might owe the government taxes – a move that some equate to a form of “financial imperialism.”
If banks fail to comply, the Treasury Department charges them with a 30 percent withholding tax on American bank earnings.
The department, keen to close the US budget deficit, is targeting American citizens and residents who have unreported taxable income in bank accounts around the world. Wealthy Americans have always hidden money overseas to avoid taxes, but new tax laws have been created because the global economy gives far more people the opportunity to make and keep money overseas.
American citizens with bank accounts overseas, and foreigners working inside the United States, are being told by their banks in Paris, Tokyo and/or Beijing that their account information is being handed over to the US agency for review.
“That’s shocking, how can they do that?” said Helene, a French woman working in Washington after receiving a letter like that from her bank back home, told Agence France-Press. She did not want her family name used.
Under the new Foreign Account Tax Compliance Act (FATCA), some 100,000 foreign financial institutions in more than 100 countries are required to report to the Treasury about any “US persons” accounts. The act passed in 2010 was an attempt to crack down on tax dodgers and the banks that facilitate money laundering.
“I know that foreign nationals who live in the US, some of them have had their bank accounts back in Europe shut down,” Dan Mitchell, a tax reform expert at the Cato Institute, said to AFP. “You are not talking only about Swiss banks or Cayman banks… you are talking banks in the UK, in Japan. Nobody likes this law.”
The US is one of the few countries that taxes its citizens regardless of where they live. Previously, “US persons” were personally required to report any possible US taxable income regarding their bank accounts to the IRS. But FATCA places the burden on foreign banking groups.
Ironically, the reverse doesn’t exist in the US, where banks are not permitted to supply information to foreign governments on their nationals’ US accounts.
“There is no reciprocity, it’s a one-way street. It really is financial imperialism on the part of the USA,” Mitchell said.
Officials and Congress estimated that FACTA will generate $8 billion in additional tax payments to the government over 10 years.
In September, it was revealed that thousands of Americans living overseas were giving up their citizenship as foreign banks were turning them away over the burden of completing the tax returns required by the US treasury under FACTA.
More than 1,500 Americans have renounced their citizenship so far 2014, the Guardian reported. This year’s total may not top last year’s record-setting statistic – nearly 3,000 Americans gave up their citizenship in 2013 – but the high numbers show the new tax law implemented by the US continues to force those living abroad to make difficult decisions.