Global Tax Insights
What China’s FATCA Agreement means for US CompaniesJuly 24, 2014
US making a push to make worldwide banking more transparent.
The recent agreement with China is the latest example of the United States’ success in making banking more transparent on a worldwide basis. Because of FATCA, the IRS is gaining information faster and more completely. This makes a US taxpayer’s ability to “hide” assets overseas less and less likely.
FATCA was enacted in 2010 and is intended to minimize tax evasion by United States taxpayers holding investments in offshore accounts. The reporting provisions of FATCA are been phased in over a number of years to require US taxpayers, as well as foreign financial institutions, to report directly to the IRS the ownership interests of certain financial accounts. Failure to do so could result in penalties ranging from $10,000 to $500,000, or even imprisonment.
It should be noted that US account holders who are currently not in compliance have the ability to come forward under the IRS’ Offshore Voluntary Disclosure Program (OVDP). This program generally carries with it a 27.5% penalty. However, effective July 1, the IRS introduced a Streamlined Program for those US taxpayers whose failure to comply was non-willful. If a taxpayer qualifies for the Streamlined Program, they could qualify for a significantly reduced penalty (5% for US taxpayers residing in the US; no penalties for US taxpayers residing outside of the US).”