Why was FATCA created?
Ever since, I learnt of this Act, its very existence was puzzling me and therefore I kept searching for motivation behind such act.
Answer came back to me in form a US Treasury chart that
As the chart above depicts, the number of Americans renouncing their passports or long-term green cards has been growing since 2008. Last year marks the third-consecutive record-breaking year.
That, to Indians, is suprising. What’s driving them away?
Unlike most countries, the IRS taxes us on all of indivudual's income, regardless of where it was earned or where the individual lived. In other words, Americans are taxed on their nationality rather than on their residency. What’s more, the law provides only partial credit for double taxation if an American owes tax in the U.S. and also in a foreign country (for being source of income)
Many Americans living overseas have grown wary of complicated tax paperwork brought about by the Foreign Account Tax Compliance Act (FATCA). They’ve come to believe that having a U.S. passport or long-term residency isn’t worth the hassle and cost of complying with our tax laws.
FATCA requires that Americans report certain foreign assets and foreign bank holdings above $10,000. And if he lives abroad, he will likely have to fork out fees for a high-priced accountant and a lawyer who have expertise in working with expats to make sure that his filing meets with the IRS onerous requirements.
Banks must disclose all foreign accounts held by Americans. That requirement came about as part of our government’s campaign to fight tax evasion and was given added attention after major Swiss banks were found to have helped Americans hide assets offshore. And the penalties for banks that fail to comply can be steep.
Rather than deal with FATCA, there are banks from around the world telling American customers that — instead of charging them higher fees to offset the added costs — the bank was shutting down their accounts. It’s not only the wealthy who are running into problems. Many of the 7.6 million Americans living abroad are ordinary working folks and retirees. Now they’re being denied financial services, such as mortgages, insurance policies and retirement plans.
It is believed that USA is close to $20 TRILLION in debt, and Washington continues to dig that hole deeper with each passing day. That means FATCA is here to stay … and politicians will continue to look for additional ways to hit Americans with higher and higher taxes.
Just look at what Congress and Obama tried to do in 2012 with the Ex-Patriot Act. They targeted wealthy Americans who had given up their citizenship … branding them as tax evaders and banning them from coming back into the U.S. Fortunately, that Act died in the Senate Finance Committee.