Background to FATCA

FATCA is so-called because it derives from the Foreign Account Tax Compliance provisions in Subtitle A of Title V (offset Provisions) of the United States Hiring Incentives to Restore Employment ACT 2010 (the HIRE Act). FATCA has two components that, together, facilitate the United States’ purpose to detect and deter tax evasion by US persons. Part I, sections 1471–1474 of the HIRE Act deals with the obligations of non-US (foreign) financial institutions to document and report accounts of US persons or those presumed to be US. Part II, section 511 amends Subpart A of Part III of subchapter A of chapter 61 and requires any US person holding an interest in a foreign asset to report those assets to the Internal Revenue Service (IRS).

Following concerns expressed by many financial firms that they were being required to break their domestic data protection laws in order to meet US FATCA requirements, the IRS entered into a series of Inter-Governmental Agreements (IGAs) that transferred the reporting obligation from the financial institutions in a jurisdiction with an IGA