Common Reporting Standard, Part 2: How does it Affect the U.S.?
Let’s continue the discussion we began last week about the creation of a common reporting standard (CRS) for revenue agencies around the world to exchange information about tax compliance.
The CRS won’t take formal effect until September 2017. But more than 100 counties have already agreed to participate.
In this part of the post, we will discuss the U.S. position on CRS and how CRS relates to U.S.’s own sweeping law on preventing international tax evasion, the Foreign Account Tax Compliance Act (FATCA).
The CRS is supposed to encourage transparency and discourage tax evasion by allowing revenue agencies to exchange information about taxpayers across national borders.
Why isn’t the U.S. among the many countries that have agreed to adopt the CRS?
One factor is a perception among government decision makers that the type of automatic information exchange with other countries required by the CRS is at odds with federal statutes.
The key reason why the U.S. isn’t on board with CRS, however, may be that we already have FATCA. Since Congress passed FATCA in 2010, the U.S. Treasury has worked out intergovernmental agreements (IGAs) with more than 100 countries around the world for the U.S. to receive various levels of information about U.S. taxpayers.
The Treasury has also worked out numerous agreements with foreign financial institutions (FFIs) for those entities to provide information about U.S. account holders.
FATCA has been widely criticized as a U.S. power play, forcing foreign governments and banks to fall into line. Foreign banks have had to choose between providing information to the IRS about U.S. account holders or paying big penalties imposed by withholding requirements on transactions.
For U.S. account holders, the effect of FATCA, combined with the IRS’s ongoing enforcement crackdown on offshore account reporting, has been a double whammy. As a result, many taxpayers have sought out the Offshore Voluntary Disclosure Program (OVDP) and similar limited-amnesty initiatives.
This would probably not change even if the U.S. adopted the common reporting standard. But if the U.S. decides to stay with FATCA while the rest of the world adopts the CRS, there would be complicated diplomatic and economic considerations to consider.
This decision will be among many awaiting the new president and Congress, after the November elections.
