Foreign Accounts Tax Compliance Act and American Leadership in the Campaign against International Tax Evasion: Revolution or False Dawn?

Promoting tax transparency to address international tax evasion is a central issue on the global policy agenda with G8 leaders recently declaring that ‘tax authorities across the world should automatically share information to fight the scourge of tax evasion’. This growing commitment to addressing international tax evasion has a long provenance. Recently, the little-known US Foreign Accounts Tax Compliance Act (FATCA), enacted in 2010, has played a key role in this effort/the international effort. The rapid evolution and diffusion of FATCA has the potential to make significant inroads into international tax evasion and has been lauded by proponents of improved offshore tax compliance. Yet FATCA is based on a ‘unilateral’ model, imposed by Washington on financial institutions operating in the US, which critics argue undermines its prospects of providing an effective basis for international tax cooperation and governance. This article provides an empirical account of the origins and evolution of FATCA, arguing that while FATCA is likely to increase the capacity of the US government to tax offshore holdings of its citizens, its ‘unilateral’ origins and design may limit reciprocity within the international tax regime. The article concludes with an assessment of the likely consequences of FATCA in terms of its impact on both international tax evasion and on global governance more broadly.

The Organisation for Economic Cooperation and Development (OECD) claims to have presided over a ‘tax transparency revolution’ since 2009. However, critics argue that the information exchange standard that the OECD has promoted – which only requires tax authorities to exchange tax information after being served with a detailed request – is ineffective and ‘a wasted opportunity’.
Critics of the OECD argue that systemic, automatic information exchange is the only effective way to identify and address large-scale tax evasion.
In 2010, the US proposed its own FATCA standard – a more rigorous and potentially more effective standard for the automatic exchange of tax information.
The FATCA regime is likely to have a number of significant yet potentially contradictory consequences. On one hand, it has added weight to the case for adopting automatic tax information exchange as the new international standard. However, it may undermine important multilateral initiatives such as the OECD Global Forum.