The European Union has given the United States an ultimatum – update the Foreign Account Tax Compliance Act (FATCA) to comply with the European Union’s Common Reporting Standard (CRS) by the end of 2018 or be blacklisted as an abusive tax haven.
The FATCA was enacted by the US in 2010 to better compel Foreign Financial Institutions (FFIs) to report certain data for accounts held by US citizens. The CRS is based on the FATCA, updated to deal with the situations and needs of the other countries that sign onto it. It was developed by the Organization for Economic Cooperation and Development, of which the United States is a member. The US has so far declined to sign onto the CRS because the FATCA “gets it done.”
Unfortunately, the FATCA legislation is missing an important aspect of the CRS minimum standards – reciprocity. FATCA by design requires financial institutions in other countries to disclose information about American account holders but does not hold US financial institutions to the same standards. This unfortunately makes the United States attractive to foreign corporations that want to park their assets in order to avoid paying taxes in their home countries.
It will be even more unfortunate if the US actually makes it onto the blacklist because this means that people who just want to protect their assets in a US trust, and through US financial institutions, will be less comfortable doing so. The average person who sets up a trust is not taking part in some subversive plot to defraud their government, they just want to protect their privacy, their assets, and their families from unforeseen and unfair liabilities.