FATCA intensifies global efforts against tax evasion
Tax evasion in the US is getting a new dimension with the recently introduced Foreign Account Tax Compliance Act (FATCA).
FATCA, which came to effect on January 1, 2013, has made it compulsory for Foreign Financial Institutions (FFIs) to collect, manage and report all information that could reasonably point to individual’s liability for US taxation to the Internal Revenue Service (IRS). CEO of EastNets Hazem Mulhim tells The Edge that by adhering to the FATCA, financial institutions have an obligation of tracking and properly documenting any foreign financial assets. Although the act is intended to prevent tax evasion among US citizens living and working abroad, it has also been raising concerns among financial institutions that want to honour international policies and yet are hesitant to possibly compromise the confidentiality of client information.
Giving his take on how FATCA will impact business in the region and Qatar, Mulhim was of the opinion that businesses looking to expand their global reach and directly invest and operate outside their home country have to take into consideration the tax being imposed by FATCA. “For many big companies, this does not pose as a threat, but smaller ones will definitely face some challenges, and some might even retreat from having a global presence if cost compliance proves too high.”
Talking about how FATCA could possibly compromise the confidentiality of client information, which has been a cause for concern among many financial institutions, Mulhim agreed that this is very true and it is a matter of concern. FATCA is a tool, he says, that governments will use to combat tax evasion. “So it is essentially a regulation, based on reporting information on the financial institution which has, as its customer, a FFI.”
Impact of FATCA
Mulhim said, “FATCA would impact the way FI do business with US citizens in the future. New foreign customers would undergo a much stricter process, and more information would be demanded.”
On the other hand, FATCA did motivate Financial institutions (FIs) to enhance, said Mulhim, their current procedures of customer due diligence. “So a lot of local banks are reviewing and enhancing their current process, expecting other countries to start implementing their own versions of a FATCA tax evasion law,” he added.
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