Countries around the globe are trying to stem the “rush to the bottom,” which has multinational companies moving their corporate headquarters to lower their tax bills. According to the International Monetary Fund, the result of this tax strategy is a loss of worldwide government revenues estimated between $500 and $600 billion annually.
FDAP refers to certain income earned by some foreign persons in the U.S. It is subject to a withholding tax of up to 30 percent, although certain tax treaties offer a lower rate.
Americans with certain foreign financial assets have special tax reporting responsibilities. The Foreign Account Tax Compliance Act (FATCA) requires foreign financial institutions and certain other nonfinancial foreign entities report on the foreign assets held by their U.S. account holders or be subject to withholding on relevant payments.
Every year, under federal law, taxpayers must report certain foreign financial accounts to the Treasury Department. Whether the account produced taxable income has no effect on whether the account is a foreign financial account for FBAR purposes.