The international banking system is constantly evolving, moving towards an international transparency enviroment. In order to charge the right amount of tax in the right country, many countries and financial institutions have committed to fight against tax evasion.
International collaboration is essential to fight tax evasion.
International collaboration is crucial to achieve these aims: Improving laxer legislations, with less control over funds and, therefore, fighting tax evasion. As companies are nowadays opened up to global markets, tax legislations must be updated and adapted to these new circumstances.
In this regard, two significant laws should be highlighted: FATCA “Foreign Account Tax Compliance Act” and GATCA, formally called "Automatic Exchange of Information".
On the one hand, FATCA is a US federal law in effect since 2010. It regulates the automatic exchange of information to avoid tax evasion by US citizens when operating foreign financial accounts. Therefore it is essential to identify those individuals who must pay taxes for the assets they own outside the USA.
The current regulatory framework applicable to Spanish financial institutions is the agreement between the US and Spain to improve the tax compliance with FATCA as well as Order HAP/1136/2014 on reporting obligations and due diligence matters.
To achieve FATCA’s main goal, all foreign financial institutions (FFI) must provide information about their customers, assets and accounts when the holder is a US citizen or when the ultimate beneficiary of the Company’s profits is from the US. The FFI must share this information with the Internal Revenue Service (IRS).
On the other hand, GATCA is an important step for international banking transparency. Its aim is to support the tax authorities in levying taxes on profits obtained in foreign jurisdictions as well as in detecting non-compliances and tax evasion.
This law is based on the mutual exchange of information between the signatory countries. Its application depends on the taxpayers’ residence to check whether they have been taxed on their income correctly and in the relevant jurisdiction. It is established as a deterrent to tax evasion and other offenses such as money laundering and financing of terrorist organizations.
The global landscape is changing towards an effective international transparency and, therefore, FFI must adhere to these new rules.
GATCA doesn’t modify countries domestic tax laws; however it establishes measures on the prevention for tax evasion by checking bank deposits made abroad by citizens of another country.
Both regulations have a clear commitment to economic integration. To this end, these laws promote the effective exchange of information, they are contributing directly towards a model of global banking transparency and, thereby, combating fraud and tax offenses.
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