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Ray Wiacek from Jones Day moderated a spirited panel of three other speakers: Itai Grinberg from Georgetown; Ruth Mason from the University of Virginia; and Joe Guttentag from the U.S. Treasury Department (retired). The speakers addressed two timely issues: corporate tax avoidance and individual tax evasion.
First, they discussed challenges collecting taxes as the nature of the world’s economy has shifted from sale of goods (which historically accounted for 75% of the economy) to intellectual property (which currently accounts for this percentage). The panelists were in agreement that most of the activity in avoiding corporate taxes is legal, and will be difficult to remedy substantively. The second issue, international and domestic efforts at combating individual tax evasion, commanded the bulk of the speakers’ emphasis in light of implementation of the Foreign Account Tax Compliance Act (FATCA).
FATCA is an effort for the United States to uncover instances of tax evasion. FATCA requires foreign financial institutions to report on U.S. citizens’ off-shore financial accounts directly to the United States. The penalty for non-compliance is effectively to lose the ability to participate in the U.S. capital market. However, the information sharing requirements are often illegal under the institutions’ domestic laws. One resolution to the conflict between these laws has been an increase in intergovernmental agreements that permit information sharing. Another resolution might be the adoption of a common reporting standard sponsored by the OECD as nations besides the United States have an interest in being able to identify off-shore financial accounts. Some nations have in fact instituted FATCA-like laws of their own. OECD should release commentary for its model legislation by the end of the year.
Questions surrounding FATCA’s implementation and compliance remain. Automatic exchanges of financial information are not currently in place, and have never been done before, so the architecture for them is currently being created. Mr. Grinberg opined that the system is likely to follow a model of standards, monitoring bodies, enforcement, and technical assistance providers to help jurisdictions to meet the standards.
The panel addressed a question from the audience about backlash towards U.S. citizens doing banking abroad and ended the session by concluding that banks will likely be forced into some sort of reporting mechanism and that the policy of the United States taxing its citizens without regard to their residence in unlikely to change.
Ryan Harrington is Head of Reference at the Yale Law Library.