news Monday, June 29, 2015 - 05:30


If you are an Indian living in the United States (US) either with a green card or an American passport you must know about FATCA. If you have either of the two and have undeclared property or wealth in India it is even more important that you understand how the Foreign Account Tax Compliance Act (FATCA) between Washington and Switzerland can affect you. If you remain stubbornly ignorant, here’s the bad news for you – in June 2014, India agreed in substance to being included in the FATCA list which now comprises most countries in the world.

If you are thinking of bypassig FATCA, you are about to make it worse for yourself as your bank and America’s Internal Revenue Service (IRS) will find out eventually. Take a cue from some of the world’s best-known tax havens that have become FATCA-compliant fearing US reprisals.

Simply stated, FATCA is America’s one-shoe-fits-all global tax policeman. The impact of this is felt most by Americans, but no country that wants to do business with the US wants to be on the wrong side of FATCA as non-compliant banks and financial institutions will be booted out of US markets. Enacted in 2012, it entered into force in 2014. For a start, FATCA requires all foreign banks to give them information of Americans with accounts of over $50,000. This includes account numbers, balance, names, addresses and other details.

The first to get hit was Switzerland. The IRS started probing its citizens and institutions with undeclared money in Swiss banks. In 2009, the IRS concluded a groundbreaking deal with UBS for $780 million in penalties and American names, and followed that up with a deal with another Swiss major Credit Suisse which pleaded guilty and paid a record $2.6 billion fine. The IRS taxes its citizens and permanent residents regardless of where they live but this was now a searching enquiry.

Banks now have to reveal information about spouses of account holders including what they own in cash, kind and property. In other words, if an American national is married to a Swiss, everything the latter holds comes under scrutiny as well– a move that has prompted many Americans in Switzerland to turn in their US passports.

The implementation of FATCA in Switzerland is based on Model 2 which means Swiss financial institutions will disclose account details directly to US tax authority with the consent of the clients. Washington will have to request data on recalcitrant clients through normal administrative assistance. 

How does one explain the fact that a strictly bilateral agreement between the US and Switzerland has now become over a 100 multilateral agreements with countries effectively turning FATCA into a multilateral-like agreement? Over one hundred countries (all major trading partners with the US) and 78,000 financial institutions are FATCA-compliant including China and Russia where Vladimir Putin signed a last-minute deal that would satisfy the US Treasury coming as it did against the standoff in Crimea. If FATCA managed to nudge the Russian President where boots on the ground and economic blockades failed, it must be serious.

It is getting increasingly difficult to run from country to country, bank to bank. But, there is a lot of unaccounted wealth out there moving faster than the hands of the law and tax authorities but nobody is dupe anymore.

Here is a full list of FATCA-compliant countries.