By Alexandra Gritta
Rabat – On February 21st, the Minister of Communications and Spokesman of the Government, Mustapha El-Khalfi, announced Morocco’s decision to sign on to the Foreign Account Tax Compliance Act (FATCA).
FATCA was first introduced under Obama in 2014, with a goal of preventing United States citizens from evading taxes on assets held outside of the States.
In recent years, the U.S. has experienced a large gap between its projected and actual tax revenues. The U.S. Government has speculated that citizens with large investments abroad as well as “green card” holders are avoiding fully paying taxes by falsely reporting their assets. FATCA was proposed to “fix” this. In short, FATCA is a request to other Foreign Financial Institutions (FFI) to annually report information to the Internal Revenue Service (IRS) about bank accounts held abroad by U.S. citizens.
What motivation do countries like Morocco have to agree to FATCA?
Naturally, it seems unlikely that other countries would take a special interest in helping the States to catch its non-compliant taxpayers. By identifying its tax-evading citizens, the U.S. would be able to increase its own revenues. But for other countries, FATCA would only involve more “paperwork” with no compensation.
Due to a low initial participation rate in FATCA, the U.S. Government decided to modify its policy in order to motivate others to sign onto FATCA. The spokesman of the American Treasury stated to L ’Agence France Presse that, “Generally, the foreign financial institutions that have not signed with the United States have to register [individually] with American tax services […] or otherwise be subject to a 30% tax levy on payments they receive from the United States.”
Therefore, unless an FFI is explicitly exempt, 30% of all U.S.-sourced income will be withheld if it opts to not participate. Since payments from the States are a huge source of income for many global banks, over 100 countries have now decided to adopt FATCA to avoid losses.
While FATCA was originally introduced to FFIs to be signed, it was later changed to be more of an agreement between entire countries and the U.S. Government. Local banks are often prohibited from reporting information to non-local authorities, so Inter-Government Agreements (IGA) were introduced, allowing FATCA to be passed and enforced as local law. This meant that many local banks were forced into FATCA without reaching individual agreements.
Controversy Surrounding FATCA
Morocco has now signed on to FATCA after years of “radio silence.” Other countries similarly withheld from agreeing to FATCA’s terms,—and not just because of the extra work involved.
A statement made by an American-Swiss man sheds some light on some of the unfairness in the system. In an interview with Swiff Info, he claims, “I was born in the United States, but I have never even lived there. I now have two layers—one in Switzerland, and one in the States,—as well an accounting firm that is helping me with my financial issues. My Swiss bank told me directly that they wanted to be more strict with their American clients, and that I had to sell all of my shares at once. So I sold every share that I owned, and transferred all of my money to the Valiant Bank AG [of Switzerland] where I held my other accounts.
One year later, I received a letter from the bank telling me that I had to sign a contract that would force me to pay penalties if it was challenged by the IRS for any problems with my accounts.”
Even those who do not identify as “American” are unjustly affected by FATCA simply because they happened to be born on U.S. soil. Those who are not ethnically American and do not live in the States have nothing to do with the United States economy. Forcing them to contribute to it from abroad has sparked an immense amount of controversy, and has left the impression that the U.S. is getting too extreme and greedy with its taxation laws. It also brings into question who should truly qualify as a U.S. “citizen,” as people are being exploited for financial gain.
