RSM Global

USA: Cross Border Tax Enforcement and FATCA

The U.S. government continues to view offshore tax evasion as a significant loss of potential tax revenue. As a result, the government has been increasing its international enforcement efforts and targeting US taxpayers with undisclosed foreign accounts or holdings with a number of punitive rules designed to force reporting compliance.

As part of these enforcements efforts, Congress enacted the Foreign Account Tax Compliance Act (FATCA) in 2010 to require certain foreign entities to disclose information about US account holders or owners, rather than face a 30% withholding tax from a broad category of payments to them. Although by stature FATCA took effect for payments or dispositions beginning in 2013, the IRS has extended the various deadlines to phase in the requirements over a period from 2013 to 2017, with many of the provisions applicable in 2014. 

Initially FATCA was not well received by a number of US trading partners because of significant compliance burdens and bank secrecy laws, however, over the last year or so, it has increasingly gained greater acceptance with a number of governments entering into Intergovernmental Agreements (IGAs) for a broad exchange of tax information with the U.S. While LATAM governments have been slower than their European counterparts to adopt such agreements, the trend is increasing with many governments either signing agreements or actively exploring options for such agreement. Currently, Mexico and Costa Rica have entered into an IGA, and Argentina, Brazil and Chile have announced entering into a dialog around the possibility of an IGA. In the interim, multinational enterprises are finding it necessary to make significant process and technology changes to identify which entities are covered by FATCA and develop action plans to implement changes required by FATCA compliance.

Also, as a result of greater transparency resulting from these new rules, US taxpayers are finding it difficult and costly to continue to hide wealth offshore in LATAM and are considering voluntary disclosure in an effort to avoid criminal prosecution.

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