held by U.S. taxpayers or face a severe withholding regime. Indeed, FATCA was the basis for the OECD’s CRS, which is now poised to become the global standard for the exchange of tax information. But again, the United States is conspicuously absent from the long list of countries committed to adopting the CRS and some take the position that FATCA makes the CRS unnecessary. However, there are some big differences between how FATCA currently works and how the CRS would work. Under FATCA, and without further legislation, the United States currently does not reciprocate the automatic exchange of certain important information with FATCA partners, such as information about the underlying beneficial ownership of entities. Indeed, in a May 5, 2016, letter to Congress, the U.S. Treasury underscored this problem, citing the need to “ensure that the United States can live up to its end of the bargain on foreign tax reporting,” and emphasizing how “the United States does not provide its FATCA partners with the same information about U.S. financial institutions that foreign financial institutions must provide to the IRS.” There is, in other words, a one-way exchange of some important information under FATCA that creates a lack of transparency about foreigners’ U.S. holdings, making the United States a tax haven of sorts. This lack of transparency has, indeed, encouraged a flight of capital to the United States. Of course, the United States has long encouraged foreigners to invest their capital stateside through
favorable tax policies. It now appears, however, that U.S. policies are encouraging capital investment in the United States by providing less transparency to other countries than it demands from them. The influx of capital is a boon for the banking sector and has even prompted some to proclaim that the United States is the “new Switzerland.” Overstated or not, it is a remarkable transformation that has largely been brought into focus through revelations contained in the Panama Papers. The final fallout from the Panama Papers remains to be seen, but one of the casualties (or at least the wounded) may very well be the secrecy offered onshore by United States’ jurisdictions. While the biggest tax data leak in history has provided a never-before-seen glimpse into an opaque global financial system and web of offshore entities, its revelations may also prompt a fresh look at U.S. policies. It is a brave new world indeed. n
Jason B. Freeman, JD, CPA
is the managing member of Freeman Law PLLC, based in the DFW Metroplex, and an adjunct professor of law at Southern Methodist University’s Dedman School of Law. He can be reached at Jason@freemanlaw-pllc.com.
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Today’sCPA July/August 2016
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