India and the US today signed an agreement to implement the Foreign Account Tax Compliance…
Vatican Signs FATCA Agreement
Praying may not be enough for non-compliant taxpayers (or evaders) under the Foreign Account Tax Compliance Act (FATCA). The Vatican has become the latest FATCA signatory to share bank information with the US.
The Vatican has signed an agreement with US authorities to report information about overseas accounts under the Foreign Account Tax Compliance Act (FATCA). This is believed to be the first intergovernmental agreement between the United States and the Holy See (Vatican), and has been characterized by the Vatican as a significant step in combined efforts to thwart tax evasion.
The agreement, which was announced on June 10, culminates negotiations that heated up around Christmastime last year.
FATCA was enacted in 2010 to help uncover assets held in foreign banks and other offshore accounts by US taxpayers. These locations are often touted as “safe havens” from US taxing authorities. The law went into effect on July 1, 2014, and has resulted in intergovernmental pacts with more than 100 countries, including Russia and China, as well as traditional tax havens, such as the Caribbean and Switzerland.
To promote compliance with US tax law, FATCA requires foreign financial institutions to report information about accounts held by US taxpayers directly to the IRS, even if the accounts hold only foreign assets. Similarly, they must report information on accounts held by foreign entities in which US taxpayers have a substantial ownership interest. If a bank refuses to disclose the information, it can be assessed a 30 percent withholding tax on certain US source payments, whether or not the recipient is a US taxpayer.
The fact that 77,000 banks have registered and over 100 countries will be providing government help to the IRS means that no foreign account is secret. U.S. persons must report worldwide income and most must file IRS Form 8938 and Foreign Bank Account Reports (FBAR) to report foreign accounts and assets. With such comprehensive databases, noncompliant taxpayers should beware; the government has better and more complete information than ever. Significant penalties apply (and possibly criminal prosecution) for failure to file required forms.
Note that FATCA does not eliminate the requirement to file the FBAR. This filing requirement applies to US taxpayers who have a financial interest in – or signature authority over – any financial account in a foreign country if the aggregate value of those accounts exceeds $10,000.
An FBAR must be filed with the IRS regardless of any other agreements. It just adds another layer of oversight. Clients who admit to being willfully non-compliant may seek protection under the umbrella of the Offshore Voluntary Disclosure Program (OVDP). Last year, the IRS announced its new streamline program for non-willful taxpayers with lower penalties to make it more appealing to taxpayers.
The joint announcement by the United States and the Vatican is another reminder that troubles for tax evaders will not disappear with or without prayer.