FATCA: Toward a Multilateral Automatic InformationReporting Regime

Table of ContentsI. Introduction ......... 1686II. International Tax Enforcement .........1688A. Offshore Tax Evasion ......... 1690B. Chapter 3 Withholding: The Starting Point for International Tax Enforcement ......... 1691C . The Importance of Information Reporting ......... 16921. Tax Treaties and Information Exchange Agreements .........16932. Qualified Intermediaries .........16943. Voluntary Disclosure .........16954. Tax Whistleblowers .........16965. John Doe Summons .........16966. Title 31 Subpeonas .........1697III. FATCA .........1698A. FATCA's Goals and Mission .........1698B. FATCA's Design .........16981. Self-Reporting .........16992. Third-Party Reporting .........1700IV. FATCA Issues and Concerns......... 1701A. Citizens Living Abroad .........1702B. Conflict of Laws: Tax Treaties and Banking Secrecy .........1703C. Costs and Administrative Burden on FFIs......... 1704D. Detriment to U.S. Investments .........1705E. Lack of Adequate Taxpayer Services .........1706V. International Collaboration Is Essential to FATCA Implementation .........1706A. International Issues Require an International Solution .........1706B. Other Countries Are Willing to Collaborate......... 1707C. Toward an Intergovernmental Approach......... 1708D. Room for Compromise: Citizenship-Based Taxation .........1710VI. Conclusion .........1713I. IntroductionThe Tax Justice Network estimates $11.5 trillion in global assets are hidden in offshore havens.1 Offshore tax evasion was the primary issue in the recent case of United States v. UBS AG,2 a dispute between the United States and Switzerland's largest bank, United Bank of Switzerland (UBS).3 In 2007, former UBS banker and American citizen, Bradley Birkenfeld, revealed that UBS was actively involved in helping its U.S. clients evade taxes.4 The Swiss bank entered into a deferred prosecution agreement with the United States, in which UBS admitted to fraud and conspiracy and agreed to pay $780 million in fines, penalties, interest, and restitution.5 Subsequently, the United States sued UBS in an attempt to force disclosure of nearly 52,000 secret accounts.6 As a result, the Swiss government struck an unprecedented deal with the United States to provide client names on 4,450 UBS accounts held by Americans despite its previous argument that handing over such information violated Swiss bank-secrecy laws.7 Although the case was arguably a success for American tax enforcement officials, it brought to light many of the current inadequacies of U.S. international tax enforcement.8In response to the UBS case and the call for heightened international tax enforcement, Congress enacted the Foreign Account Tax Compliance Act (FATCA).9 By enhancing information reporting, increasing withholding taxes for foreign financial institutions that do not engage in information reporting, and strengthening penalties for taxpayers who do not adequately report their income, FATCA makes it more difficult for U.S. persons to engage in offshore tax evasion.10 Despite FATCA's worthwhile goals of increasing tax enforcement and tracking down tax evaders, its enactment raises several significant concerns.11This Note will argue that international cooperation is essential for successful FATCA implementation. Part II will provide background information on offshore tax evasion and existing U.S. mechanisms for international tax enforcement. Part III will explain key FATCA provisions, and Part P7 will discuss concerns regarding FATCA as originally enacted. Finally, Part V will introduce the proposed intergovernmental approach to FATCA and argue that international cooperation and development of standardized requirements will mitigate FATCA concerns and facilitate its implementation. Part V also argues that abandonment of the U. …