You may have heard about FATCA and its potential effects on American investors and the economy as a whole. But what is FATCA, what is its purpose, and what may be its effects? Go through the slideshow and read below to have these questions answered.
What are the penalties of not complying with FATCA?
If foreign financial institutions don’t comply, the IRS will impose a 30% withholding tax on all transactions concerning U.S. securities. In other words, foreign financial institutions and Americans holding accounts overseas will lose access to 30% of their holdings.
How much will FATCA cost?
FATCA might cost billions of dollars to set up, while the IRS will only collect an estimated $792 million in tax revenues from it. The foreign financial institutions will need to set up entire new departments in order to handle the additional work required to comply with the law.
Is anyone fighting FATCA?
According to Think Progress, “The most recent GOP budget cut IRS funding for tax enforcement, and the Republican National Committee is calling for a full repeal of FATCA.” Additionally, Switzerland’s Credit Suisse, the UK’s Barclays, and Canada’s TD Bank have spent millions of dollars lobbying to change the law.
When will FATCA take into effect?
July 1, 2014 is when foreign financial institutions registered under FATCA are required to withhold 30% of U.S. financial assets if holders fail to meet the new reporting requirements.
What could be the effects of FATCA?
Foreign financial institutions are already talking about diversifying out of all U.S. securities to avoid paying billions of dollars to comply with the act. 77,000 banks and financial institutions have registered themselves under it so far. $27 trillion of the European financial industry is invested in U.S. securities. If this $27 trillion is suddenly pulled out of the market, there may be a crash. European banks are already contacting U.S. citizens urging them to close out their accounts. China is looking to create banking relationships with Germany, England, Hong Kong, etc. and start using the Yuan (their country’s currency) for trade. The act could quickly hurt the value of the U.S. dollar.