Marc Gerson and Kim Majure comment on the Foreign Account Tax Compliance Act of 2009, which targets off-shore tax shelters. “The major provisions are things that basically increase the amount of information reporting about payments to foreign financial institutions,” says Gerson. “This puts a reporting requirement primarily on non-U.S. financial institutions to be the information provider to the (Internal Revenue Service). If a financial institution doesn’t satisfy certain reporting requirements, a 30-percent withholding is supposed to apply.”
Majure says the bill takes an indirect approach by targeting foreign financial and non-financial lenders rather than taxpayers. The proposal also repeals tax benefits related to foreign-marketed bearer bonds, she says, which would create a great deal of pressure on foreign lending. “If the result is significant capital flight, U.S. companies could get stuck with higher cost of any remaining capital,” Majure says.