Foreign Accounts Tax Compliance Act and American Leadership in the Campaign against International Tax Evasion: Revolution or False Dawn?
| Author | Felicity Gray,Richard Eccleston |
| DOI | http://doi.org/10.1111/1758-5899.12122 |
| Published date | 01 September 2014 |
| Date | 01 September 2014 |
Foreign Accounts Tax Compliance Act and
American Leadership in the Campaign
against International Tax Evasion: Revolution
or False Dawn?
Richard Eccleston and Felicity Gray
School of Social Sciences, University of Tasmania
Abstract
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 crit-
ics 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 conse-
quences of FATCA in terms of its impact on both international tax evasion and on global governance more broadly.
Policy Implications
•The Organisation for Economic Cooperation and Development (OECD) claims to have presided over a ‘tax transpar-
ency revolution’since 2009. However, critics argue that the information exchange standard that the OECD has pro-
moted –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.
In the aftermath of the Financial Crisis, so-called offshore
tax havens and how best to combat international tax
evasion have received unprecedented political attention.
Promoting tax transparency and restricting harmful tax
competition was a peripheral global policy issue for dec-
ades. However, amid the ongoing public debt crises and
associated austerity that have engulfed much of the
developed world since 2008, this policy area is now a
prominent issue on the international agenda. Yet despite
recent attention, the most appropriate strategies for
addressing international tax evasion and their ultimate
effectiveness remain contested.
The nature of tax havens and the international com-
munity’s response to them has been a subject of much
debate over the past 15 years. Following the OECD’s
failed attempt to limit Harmful Tax Competition (HTC) in
the late 1990s (OECD, 1998), the focus of reform initia-
tives has been on promoting international tax transpar-
ency. As explained in greater detail below, the policy aim
here is not to limit tax competition between sovereign
Global Policy Volume 5 . Issue 3 . September 2014 321
Research Article
Global Policy (2014) 5:3 doi: 10.1111/1758-5899.12122 ©2014 University of Durham and John Wiley & Sons, Ltd.
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