Tax collection agencies generally do not rank among the world’s most exciting institutions. The IRS’s international renown stems from its spectacular tax enforcement cases and its world-spanning operations. The IRS, for example, was instrumental in getting Swiss banking secrecy vis-à-vis the USA repealed. The Foreign Account Tax Compliance Act, better known as FATCA, is a unilateral set of US regulations that applies to almost every country worldwide. It has been in force in Switzerland since 2014. FATCA requires foreign financial intermediaries like banks, insurance companies, asset managers, etc. to disclose information on US accounts or to levy a tax on them. Just last year the IRS once again demanded the release of account details from 29 banks in Switzerland.
Moreover, the USA is the only industrialized nation that determines the obligation to pay taxes by nationality and not by domicile – Eritrea is the only other country that engages in the practice of taxing people on the basis of their place of birth and not their place of residence. An estimated nine million US citizens live abroad today, and they own approximately 3.7 trillion US dollars worth of reportable assets, according to congressional testimony by an IRS official. But many “accidental Americans” are not even aware that they are subject to taxation by the USA: they, for instance, were born in the USA, but have lived in a different country since childhood or adolescence. Only those who formally renounce their US citizenship – a process that is more expensive than in any other country around the world – are freed from US taxation.
But the IRS’s international reach doesn’t stop there. The IRS even taxes non-US citizens who do not reside in the USA if they happen to own US securities that generate dividends, as required under Section 871(m) of the Internal Revenue Code (IRC). And yet another international paragraph will be added to the IRC effective as of January 1, 2023: IRS Section 1446(f) (see box in blue).