The Response Measures and the Impact in Taxation to the Introduction of Foreign Accounts Tax Compliance Act(FATCA)
Asian Tax Journal Vol. 15 No. 5 (2014), pp. 163-193
Abstract
As Korea and the United States agreed on the introduction of Foreign Accounts Tax ComplianceAct(FATCA) in July 2014, the act is scheduled to be implemented. As a result. U.S. citizen anda permanent resident, who has an account in Korea, faces an urgent attention. FATCA isintroduced by the federal government to enhance current reporting system in order to preventfurther tax evasion using offshore accounts, which requires every bank－specific financial assets ofmore than $ 50,000 must be reported. Since FATCA initiates in July 2014, it is expected toarrange the number of changes accordingly. Considering such changes, the financial institutionsand tax authorities should be fully prepared in advance. In response, the cross－border financialasset reporting system must be smoothly implemented, which can only be achieved byprofessional development within the tax authorities providing effective communication of taxrelatedinformation. In addition, the financial institutions are required to improve the financialsystems, and strengthening related profession. In this study, the issues and impacts resulted in the introduction of FATCA is closely looked at,and the response in the taxation measures and countermeasures are investigated. The results of thisstudy are summarized as follows. Firstly, the financial institutions should be thoroughly preparedfor FATCA. Second, in order to obtain information of foreign financial asset, the properinfrastructure (protocols) needs to be built by the tax authorities. In accordance to the agreementon the Act., the tax authorities in Korea need to discover new method of imposing tax, and thismust be utilized. Third, the financial institutions needs to provide utilities such as granting taxcredits and incentives on investment for FATCA initiation. Fourth, inequality in terms of Taxneeds to be improved. Fifth, the improvement on physical facilities and personnel is needed inorder to smoothly perform current FATCA, Sixth, besides the States, along with other countriesfacing FATCA, it is necessary to prepare upcoming events. Finally, the financial institutions aswell as the tax authorities must not hesitate to strengthen specific protocols in the response to theimplementation of FATCA, and to maintain on going efforts.
Keywords
- FBAR
- FATCA
- Offshore Tax Evasion
- Foreign Account Tax compliance Act