Foreign Account Tax Compliance Act (FATCA)
About Signed into law in the U.S. in 2010, FATCA affects not just financial institutions in the U.S. and ‘U.S. persons’, i.e., citizens and residents of the U.S. and companies, trusts and other entities controlled by them, but also what the U.S. defines as ‘Foreign Financial Institutions’ or FFIs (‘foreign’ is with regard to the U.S.).

These institutions, which include banks, mutual funds, PE and hedge funds, among others, are required to collect information on U.S. persons who are depositors or investors. Failure to do so would entail a 30 per cent withholding tax on the FFI’s U.S. source income.

1. It is likely that a financial institution outside the U.S. pays money to or gets money from a U.S. source and not complying with FATCA will automatically mean being subject to a withholding tax.
2. To overcome any country specific hindrances to sharing information on investors and depositors, the U.S. has entered into Inter Governmental Agreements (IGAs) with partner countries. An IGA was signed with India in 2015.
3. FATCA is part of the U.S.’s answer to tracking money hidden in offshore accounts so it can be brought into the tax net.
4. This is part of a larger global trend to fix loopholes in international taxation in order to make evasion harder. But the picture is a bit messier with FATCA owing to the fundamentally different nature of U.S. taxes.

About US Taxation Laws
The U.S. is the only developed country in the world that imposes citizenship based taxes — so American entities everywhere are normally required to file U.S. tax returns regardless of their residence or the source country of income.