IRS Clamps Down on Foreign Assets Circe Vargon - Rumbo de Mexico
go to original May 7, 2012

MEXICO CITY – A new law that targets non-compliance by U.S. taxpayers using foreign accounts, including Mexican accounts, could put an extra strain on tax payers and financial institutions.

Passed by the U.S. Congress in 2010, by 2014, the Foreign Account Tax Compliance Act (FATCA) will require all foreign financial institutions (FFIs) to report information of all U.S. account holders who have deposits of more than $50,000 to the Internal Revenue Service (IRS), or pay a 30 percent withholding fee on outbound profits on U.S. investments.

According to José Luis Rojas de la Cruz, a business risk services managing partner at Grant Thornton de México, FATCA seeks to encourage U.S. domestic job creation by controlling international fiscal operations and preventing tax evasion. “Although there are international treaties that allow the exchange of fiscal information, they are not comprehensive enough for the purpose of countering tax evasion,” Rojas de la Cruz said. “U.S. tax authorities … consider that these provisions are ideal for controlling and auditing taxpayers on their assets and income” in another country.

According to an article published by the Wall Street Journal, complying with the new tax might be almost as costly as the fines. FATCA is estimated to cost foreign banks with more 25 million accounts, such as Banamex, roughly $250 million to search their databases and identify accounts held by U.S. citizens.

The Private Equity Growth Capital Council sent a letter earlier this week to tax regulators asking that a centralized compliance process be established. As the law stands now, all holding companies that house investment must enter into separate FFI agreements, which complicates the system and is not effective for regulators or private equity firms, the council said.

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