Almost a decade ago, governments forced banks to spy on their clients by collecting and sharing specific information with tax authorities. Billions of dollars, euros and other currencies that were, and are, held in jurisdictions offering extremely favourable tax regimes were the main reason for governments to act. The US and the EU countries were losing billions in unpaid taxes.
In pursuing greater financial integrity and fair taxation, US and EU governments introduced pioneering measures: FATCA, CRS, and DAC. These mechanisms for information exchange served as shields against tax evasion and improper tax strategies. However, these measures had significant implications for personal privacy, raising questions about the balance between combating tax offences and potential citizen surveillance.
What Is The Foreign Account Tax Compliance Act (FATCA)?
In 2010 the US adopted the Foreign Account Tax Compliance Act (FATCA). This act compels US citizens at home and abroad to file annual reports on any foreign account holdings.
FATCA aims to eliminate tax evasion committed by US citizens and businesses that are investing, operating, and earning taxable income abroad. While it is not illegal to control an offshore account, failure to disclose the account is considered illegal since the US taxes all income and assets of its citizens on a global scale.
How Does FATCA Work?
A fun fact is that the US only receives information from banks operating outside America but does not share any information on foreign citizens and companies holding US bank accounts. For now, the US is a great place for foreign nationals who seek to open secret accounts abroad.
What Is The Common Reporting Standard (CRS)?
Common Reporting Standard (CRS) is a global standard for the automatic exchange of financial account information, which came into force on 1 January 2016.
The CRS aims to combat international tax evasion. The standard requires financial institutions to identify financial accounts belonging to customers who are tax residents in a country or jurisdiction that is not the country or jurisdiction of the financial institution.
How Does CRS Work?
Almost all countries participate in CRS (find more on Automatic Exchange Portal). The US is not part of CRS because it receives information on its citizens through FATCA.
What Is DAC6?
DAC6 is a mandatory reporting regime related to cross-border arrangements.
This regime is the newest tool for EU tax authorities in the continuing global crackdown on perceived tax avoidance and evasion. This new regime aims to ensure EU tax authorities have early access to information about tax planning. The EU Commission hopes that this will help protect the tax base of the EU member states as they will be better placed to challenge the tax planning and/or change the law to prevent similar future transactions at an early stage. In addition, the provisions are meant to deter taxpayers from implementing abusive tax schemes.
DAC6 was established in 2011 when the European Union adopted Directive 2011/16/EU on the mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements. Amendments have been made by Directive 2018/822 (EU DAC6), which introduces additional reporting requirements intended to assist the EU Member States to identify potentially aggressive tax arrangements.
How Does DAC6 Work?
Are FATCA, CRS And DAC6 Designed To Spy On Ordinary Citizens?
It’s a tricky question. On the one hand, tax authorities need to fight tax evasion and other financial crimes. As a rule, such crimes are committed by persons located in different jurisdictions. International sharing of information and cooperation among tax authorities is a must in order to prevent such crimes and punish guilty persons.
However, at the same time, FATCA, CRS and DAC6 are perfect instruments to spy on citizens and control them. If you live in a democratic country, it is unlikely that the state will use them against you. But, if one day your country will become a dictatorship, like Russia, China and many others, these information exchange schemes will serve for oppressive regimes as tools allowing them to control and enslave their citizens.
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