The Foreign Account Tax Compliance Act (FATCA), Subtitle A of Title V of the Hiring Incentives to Restore Employment Act (HIRE), Pub.L. 111-147, 124 Stat. 71, enacted March 18, 2010, enacts Chapter 4 of, and makes other modifications to, the Internal Revenue Code of 1986.
It requires foreign banks to find any American account holders and disclose their balances, receipts, and withdrawals to the US Internal Revenue Service (IRS), or be subject to a 30-percent withholding tax on income from US financial assets held by the banks.[1] Owners of these foreign-held assets must report them on US tax returns if they are worth more than US$50,000 and those who do not would be subject to a 30-percent penalty on the balance of the account in question.[1] These reporting requirements are in addition to reporting of foreign financial assets to the US Treasury Department,[2] particularly the "Report of Foreign Bank and Financial Accounts" (FBAR) for foreign financial accounts exceeding US$10,000 under the Bank Secrecy Act of 1970 regulations by the Financial Crimes Enforcement Network (FinCEN).[3] FATCA also closes a tax loophole that investors had used to avoid paying any taxes on dividends by converting them into dividend equivalents.[4]
There are fears of imposition of capital controls, and assertions that capital flight is underway as a result.[5][6] There have also been privacy concerns, in particular for those with dual citizenship.[7] As a result of FATCA, European banks such as Deutsche Bank, Commerzbank, HSBC, and Credit Suisse have been closing brokerage accounts for all US customers since early 2011 citing "onerous" US regulations, which FATCA will make more complex when it goes into effect in 2013.[8][9]