Proceedings of Annual Spain Business Research Conference
14 - 15 September 2015, Novotel Barcelona City Hotel, Barcelona, Spain
ISBN: 978-1-922069-84-9
Accounting and Tax Effects of Applying American Foreign
Accounts Tax Compliance Act (FATCA) On Financial
Institution: Evidence from EGYPT
Nabil Abd- El Raouf Ebrahim
This paper to answer for this question: What are the accounting and Tax effects on the
application of the FATCA law? The study was applied to a sample of decision-makers
Governmental Sector, banks and tax department during time period (2011-2014). This
law obliges these institutions to notify the IRS with all the transactions of the Americans in
order to improve tax compliance for purposes related to disclosing taxable income for
taxpayers of United States.
The results of operating the data have shown that the revenues of the ETA are
threatened because most of the financial assets of the US bank investments are in banks
outside Egypt; therefore, there is no impact on the revenues of the Egyptian banks,
income tax.
Words: FATCA, Income Tax, financial institutions, Banks, Tax Compliance.
Introduction:
The American Congress passed the Foreign Accounts Tax Compliance Act (FATCA) on
the 18th of March 2010 as a part of the Hiring Incentives for Restoring Employment Law
(HIRE)1 to restore the employment rates; that was one of the significant changes made
by the Americans to fight tax evasion.
The Research Problem:
The research problem is about the challenges that the banking sector- generally all over
the world and specifically in Egypt, faces in meeting the needs of the application of
FATCA and in being compatible with its requirements, such as revealing financial
reports and disclosing the secrets of Financial Institution clients who are outside the
USA as the FATCA obligates them to submit the American taxes authorities with all the
transactions and data of their American clients, otherwise they will be exposed to
financial penalties because of not complying to the law. Consequently, there should be
a number of financial, legal, informational, administrative, and marketing reforms, in
addition to the accounting amendments the researcher discussed to improve the bank
financial reports and the client contracting documents in order to ensure that bank
clients will not leave the bank and lead to a decrease in the number of bank clients
causing a decrease in the bank revenues .Therefore, there should be an accounting
study to explore the effects of the FATCA on banks, reconsider the account privacy law
and anti-money laundry agreements, and qualify bankers, as well as reconsidering the
tax agreements conducted with the American government.
___________________________________________________________
Dr. Nabil Abd- El Raouf Ebrahim, Associate Prof in Accounting Department, Sherouk Academy
1
- Hiring Incentives to Restore Employment
Proceedings of Annual Spain Business Research Conference
14 - 15 September 2015, Novotel Barcelona City Hotel, Barcelona, Spain
ISBN: 978-1-922069-84-9
The Research Objectives:
The main objective of the research is:
Studying the effects of implementing the FACTA on Egyptian Financial Institutions and
the total revenue of income taxes, in addition to other secondary objectives like:
1- Presenting financial reports according to the FATCA regulations;
2- Knowing the most important financial reports that Foreign Financial
institutions comply with;
3- Tackling the challenges facing implementing the FATCA in the financial
institutions (Banks) and the Egyptian Tax Authority and suggesting solutions
to these challenges.
The Research Methodologies:
1) The Inductive Methodology:
Through a field study of the research hypotheses that include preparing lists
of questionnaires depending on five ranking
2) The Extrapolation Methodology:
Through going through the foreign, regional and local previous studies,
scientific researches, and articles related to the research topic.
The Previous Studies
(Hany Abou Al –Fotouh 2012)Study2
The study pointed out the challenges facing the banking sector in Egypt because of the
American tax law issued in 2010 which will be enforced in 2013.The study shed light on
the increase in the operating costs and the radical changes in the payment systems and
the customers data that the banking institutions will endure as a result of implementing
the FATCA law .The study also presented some solutions for the challenges some
banks may encounter as a result of implementing the FATCA law.
(Fariz Huseynov: 2012)Study3
This study tackled the relationship between tax avoid and the taxes-department of
companies from the social responsibility perspective on implementing the FATCA law
and the possibility of improving the operating costs and decreasing any kind of possible
losses as a result of complying with the FATCA law. It reached a solution of how to get
rid of aggressive tax avoid as it represents the negative part in contributing to bearing
the shares of the juridical persons in the public expenditure and it is essential for the
tax authority to present a complete, sufficient and honest disclosure of all the
transactions of Americans outside the USA with a complete liability in paying the taxes
as they are holders of the American nationality to avoid penalties and fines.
2
3
- Hany Abd Elfatah. 21agst 2012 Elwafdportal - http://www.alwafd.org/'D1J'6)/254982
- Fariz Huseynov, Bonnie K. Klamm, "Tax avoidance, tax management and corporate social responsibility".
Journal of Corporate Finance, Volume 18, Issue (4, September 2012), Pages 804-827
Proceedings of Annual Spain Business Research Conference
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ISBN: 978-1-922069-84-9
(John Hussledein: 2012)Study4
It tackled the effects of tax avoid on social responsibility of corporations from the perspective of
the compliance of the foreign banks which are in agreement with the American Financial
institutions with implementing the FATCA law. There should be a clear disclosure of the
financial assets invested outside the USA and hence, paying taxes from the revenues that come
out of it which will contribute in the public revenues. Consequently, the goal of implementing
the FATCA law in fighting unemployment and tax avoidance will be achieved.
(Christopher: 2012)Study5
It tackled the profits that the corporations get out of tax planning to avoid the risks of not
complying with FATCA law; these risks could be fines because of not fully disclosing of the
foreign Financial institutions transactions, not presenting a full disclosure of the Financial Assets
outside the USA, or dealing with the transferring prices to avoid paying high tax rate in the
country of residency.
(Roberta: 2012)Study6
The study tackled measuring taxable revenues and full compliance with the requirements of
implementing FATCA law from a behavioral perspective. The study pointed out the importance
of the psychological dimension in implementing FATCA law and the disclosure of the taxable
revenues whether gained inside or outside the country and which are related to the FATCA law
or to the income taxes as empathy and voluntary tax liability increase the resources of the
homeland country.
(Marsan, Dean: 2010)Study7
The study pointed out that it is necessary that the global Financial system fulfills now the
FATCA requirements, prepares the Financial reports, and deducts the withholding taxes from all
the foreign accounts of all Americans for anti-tax evasion in the USA and the countries that will
have agreements of liability to this law as it brings tax profits on the governmental level. The
study recommended complying with this law and suggested that all other countries should make
agreements to enforce this law as long as it brings about mutual benefits and reciprocity.
Firstly: Challenges Facing Banks in Implementing FATCA Law and Suggestions for
Solutions:
4
- John Hasseldine, Gregory Morris, "Corporate social responsibility and tax avoidance: A comment and reflection".
(Accounting Forum), Journal of Accounting & Finance, Volume 65, Issue 2, June 2012, P.P: 804-827.
5
- Christopher S. Armstrong, Jennifer L. Blouin," The incentives for tax planning". Journal of Accounting and
Economics, Volume 53, Issues1- 2, (February–April 2012), Pages 391-41.
6
- Roberta Calvet Christian, James Alm, "Empathy, sympathy, and tax compliance", Journal of Economic
Psychology, (13 October 2012)
7
- Marsan, Dean, "The Global Financial System Must Now Implement a New U.S. Reporting and Withholding
System for Foreign Account Tax Compliance, Which Will Create Significant New Exposures-Managing This
Risk" Taxes, (Sep 2010) P.P:128,144.
Proceedings of Annual Spain Business Research Conference
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ISBN: 978-1-922069-84-9
The FATCA law addresses Foreign Financial Institutions (FFIs)8 existing outside the United
States of America with no headquarters within the American territory as a permanent
organization and obligated by the law to inform the American Internal Services with all its
transactions with American nationality holders through reports prepared annually, otherwise
there will be a 30% deduction from the transactions of these Financial institutions when dealing
with its American counterparts9. with its correspondents with American institution and that for
the sake of avoiding tax evasion of American individuals whether (Natural or Juridical Persons)
in return for their assets in investments abroad. For example:10
Financial institutions
accepting deposits
Financial institutions having
Financial assets of others
-Specialized Banks.
-Commercial banks.
-Associations donor loans.
-Credit Union.
-Condominium.
-Co-operative building
societies.
-Corporations.
-Clearing Companies.
-Affiliated companies
-Security.
-Insurance companies.
-Reinsurance companies
Financial institutions
concerned with investments or
reinvestments
-Mutual Funds.
-Special funds.
-Futures & Option
-Investments capital.
-Services and products
management.
-Pension funds.
According to a study made by the Union of Arab banks in this field, they suggest the amount of
money that could be collected for the American Treasury can be estimated by 800 million dollars
if 30% is to be deducted in the first year of implementing the law and more than tens of milliards
if these amounts are to be deducted directly through banks.11
Egypt and other countries are getting ready to apply the regulations of the law to pursue clients
of American nationality who did not paid their taxes to their countries through creating bank
accounts, or investing in countries that don’t impose taxes on capitalist transactions. That is to
avoid penalties imposed on the banks that don’t co-operate with the American Treasury;
estimated by 30% of the transferring value; regardless to the owners of these processes. That
forces American taxpayers to pay their taxes and prevents them from taking advantage of
deposits, funds, etc. in other countries to hide their money and evade taxes according to the
American law. So, this law focuses mainly on caring about the American interests regardless to
the other countries' interests unless there is reciprocity since relations between countries is to be
based on mutual interests. Consequently, Financial institutions that have mutual interests with
America will sign agreements by which they will be assigned to disclose their American clients'
data and transactions through annual reports to the American Treasury represented in the
8
- Forgin Financial Institutions, such as: Banks, Stock exchange, insurance companies, brokerage houses,
Companies Financial Brokers, Mutual Funds, money funds…and etc.
9
- Jaeger, Jaclyn. "IRS Seeks Input on Foreign Withholding Rules". Compliance Week (Dec 2010) P.P: 33, 64.
10
- Foreign Ministry against direct FATCA agreements between banks and U.S. Russia & CIS Banking & Finance
Weekly. Financial Policy, (Jul 20, 2012).
11
- Foreign Ministry against direct FATCA agreements between banks and U.S. Russia & CIS Banking & Finance
Weekly. Financial Policy, (Jul 20, 2012).
Proceedings of Annual Spain Business Research Conference
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ISBN: 978-1-922069-84-9
American Internal Revenues of Services (IRS) including their data and transactions as they are
assigned to pay their taxes even if they have their green cards for pursuing those who evade
paying their taxes and for financing the American Treasury.
International Banking Institutions:
A state of debate and worry prevailed among banking sectors of how possible it is to implement
the FATCA. They wondered if the Foreign Account Tax Compliance Act is a set of procedures
aiming at forcing and enslaving all countries to serve American interests, and if it is a real
attempt to prevent tax avoidance, anti-money smuggling and money-laundering. The number of
people who must pay their taxes outside America and who evade taxes through smuggling their
money outside America reached 17 million people since a citizen is to pay taxes as long as he
has the American nationality even if he is not staying in America.12
Officers in banks and institutions have some concerns about this law as implementing the
regulations of this law will be exorbitant. In addition, the new act regulations contradict with the
laws of the banking clients' privacy applied in many countries. So, it can be said that this law is
exploiting financial institutions to provide the American tax authorities with all the data available
about American individuals (ordinary or corporations). So, it is clear that financial institutions
should comply with the Act and adapt to it for the mutual interests among countries. However,
some studies have shown that it is difficult to implement the law now as financial institutions
need some modifications in its financial systems and accounting techniques to be ready for an
ideal implementation of the Act. So, it is essential to postpone implementing the law for some
more years.13
A lot of banks in so many countries have showed a desire to implement the FATCA law after
studying it to know its required expenses and resources, the stages of execution, and to what
extent it is suitable for its local banking system according to the law on one side and the
correspondent banks on the other side. The American Treasury published in July 2012 or may be
2015 a model agreement between five countries: Germany, France, Italy, Spain, and the United
Kingdom. This agreement is concerned with exchanging data among these countries and it
determined specific procedures of how to exchange this data..14
The Egyptian situation:
The Egyptian Central bank held a number of seminars for the Union of Arab banks to discuss
and consult each other to find ways of dealing with the Act since Egypt has its own banking laws
(The Egyptian Central Bank Act)15 that ensure the privacy of bank clients' accounts dealing with
the banking sector. So, a foreign Act, which may contradict with the Egyptian law articles,
cannot be imposed. As a result, there should be a legislative change for bank account privacy.
12
- Wolfe, Daniel, "Banks Face the Facts on FATCA". American Banker, [New York] 29 Dec 2011.
- Firms still unprepared for FATCA, "Investment Week" (Jun 11, 2012) P.P: 32, 36.
14
-Treasury Department Documents and Publications. "Joint U.S.-China Economic Track Fact Sheet- Fourth
Meeting of the U.S. China Strategic and Economic Dialogue", (May 4, 2012).
15
- Egyptian Central bank Low No. 88 for 2003 Year. Act.
13
Proceedings of Annual Spain Business Research Conference
14 - 15 September 2015, Novotel Barcelona City Hotel, Barcelona, Spain
ISBN: 978-1-922069-84-9
Consequently, it is not logical and unacceptable to make amendments in the Egyptian law to
allow Americans implement a law on their citizens in countries having their own sovereignty.
So, the Egyptian Central Bank is the one to decide whether to implement that law or not and the
benefit of the Egyptian Banking Sector is to be taken into consideration. However, the researcher
has found out that there is no problem in implementing the Act in Egypt as we can demand a fair
treatment just as what other countries like the United Kingdom, Germany, Italy, and others
which accepted implementing the act did as there are no clear penalties for the countries that
refused to implement the act, but there will be some indirect penalties related to dollar
transactions and transfers to the banking institutions that deal with American individuals. So, if
this law is to implemented, an article should be added to the applications of creating new
accounts revealing clients' nationalities and if the applicant is American, then he should comply
with this law. So, banks will deduct the amount of money estimated by the American Treasury
even if this law has cancelled all the Golden legal regulations of the prevailing law which say
that laws are not to be implemented outside its territory.
Moreover, the Central bank should shed light on the penalties in case that any bank refused to
comply with the Act, implement the law, or take decisions like not to open any new accounts to
their American clients or to get rid of their American clients as a strategic option for the bank.
Therefore, it is essential to know the distribution of those clients in the Arab and regional
territories and the effects of losing some of those investors in Egypt. In addition, it is necessary
to know the economic penalties that are to be imposed on those who refuse to co-operate and
implement the FATCA law and how it will be reflected on the marketing and competing position
of the bank.
According to the Act, financial institutions are required to:
1) know the identities of the account owners through certain procedures,
2) present annual reports to the American Treasury about the American customers there or
any foreign properties that have an American ownership,
3) reserve and pay 30% of any amount of money of American source of income to the
American Treasury and the total money of selling securities that brings income from an
American source for the benefit of:
a) Foreign Financial institutions,
b) Individuals like account owners who failed in saving enough data to determine
whether or not the client is American or not.
c) Foreign companies' accounts that failed in having enough data about the identities
of their American clients who have big shares.
The Revenues the FATCA applies to be:
1- Interests of deposits and revenues of bonds and financing instruments,
2- Dividends of shares and investment instruments,
3- Royalty of trademarks and knowhow,
4- Capitalist Gains,
5- And others.
Proceedings of Annual Spain Business Research Conference
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ISBN: 978-1-922069-84-9
The Revenues of the Financial Assets the FATCA law applies:
1- Banks deposits,
2- Contracts of Hedging (Credit cards contracts, future Options, contracts of
exchanging banking prices and interests on bonds),
3- Contracts of mediation with trade institutions and traders,
4- Brokerage contracts,
5- Securities of all kinds,
6- Contacts of insurance and reinsurance.
The FATCA law doesn’t apply real estate investments and revenues of owning collections of
antiques, jewels, gold, cars, and other concrete properties as long as it is for personal use.
The researcher suggests a package of modifications for banks to make if the law is
implemented in Egypt:
1Procedural modifications:
They include revising documents and forms of the client accounts to provide banks with
information about the client nationalities and their money sources. Modifications in the
documents of creating new accounts are to be made, as well as adding an article that requests the
client approval on exchanging their information between the bank and the American government
and that their data is not private anymore.
2Modifications in Information Systems:
They include informing clients with their transaction which the American Treasury got notified
with to be aware of what is being disclosed about their account as a part of their tax compliance
of their foreign revenues. In addition, creating new technological scales by which the law can be
applied technologically. Moreover, there should be a financing resources to support and update
the creation of this information technology to prepare an infrastructure of information technology
suitable for implementing the Act.
3Legislative Modifications:
 There should be an amendment in the Central Bank Law to allow all banks in Egypt
disclose all their American clients' transaction data to the American Treasury which is
against account privacy rules.
 They involve implementing an agreement based on reciprocity between the two countries
involving exchanging information.
4Administrative modifications:
They involve developing administrative structures by constructing a sector concerned with
issuing financial reports and disclosing them back to back to the American Treasury. In addition,
the employees working in the administration should be well-trained in a way that would help
grab the American clients' attention that these procedures are important for them in order not to
be fined.
Proceedings of Annual Spain Business Research Conference
14 - 15 September 2015, Novotel Barcelona City Hotel, Barcelona, Spain
ISBN: 978-1-922069-84-9
5Marketing modifications:
They involve diversifying banking products and enhancing marketing campaigns to activate
marketing the bank products in most of the American region to inform the American society
about how banks comply with the requirements of the American laws so that banks can gain the
American government's trust for banks and hence, banks can attract more customers who are
more committed to paying their taxes.
Concerning costs and benefits, these modifications will certainly lead to increasing the operating
costs which will affect the profitability. However, these modifications will help in enhancing the
Egyptian banks ranking in the international institutions based on banks categorization therefore;
this will increase their transactions with American clients and consequently, increase the bank
revenues on the long term.
Secondly: The Challenges Facing the Egyptian Tax Authority in Implementing the
FATCA law and The Suggested Solutions
The Act also addresses American taxpayers. It requires them to present annual reports on a
specific form (FORM: 8983) about their Financial assets invested outside The United States of
America in Foreign Financial institutions or any other Foreign institutions if these investments
exceed 50 thousand dollars for Natural Persons, or 250 thousand dollars for Juridical Persons
starting from the date of issuing this law,18th of March 2010, Tax Return.16
It is worth mentioning that the American tax law obliges taxpayers now to submit reports about
all their transactions with Foreign banks (FBAR) to the tax administration. However, these
reports are not to oblige the Foreign Financial institutions to disclose their American clients' data
to the American Treasury. So, it was necessary to issue the FATCA. In addition to that, the data
required in (FORM: 8983) is more comprehensive.17
In case these reports were not submitted, the assigned penalty will be imposed on them. These
penalties are to deduct 30% from all incomes earned from residing American individuals for the
benefit of Foreign Financial institutions starting from 1st of January 2014. Starting from the first
of January 2015, all the payments of residing American sources will be completely blocked for
these institutions.18
This Act is considered as a complete violation to the sovereignty of all the country members of
the General Assembly of the United Nations in a way that represents a danger to all the financial
16
- Luscombe, Mark, "Tax Trends: Proposed FATCA Regulations - Trying to Make It Work". Taxes (Apr 2012):
P.P: 56, 87.
17
- Roger S. Wise, Mary Burke Baker, "Next phase of FATCA guidance arrives with proposed regulations and
announcement of possible intergovernmental approach". Journal of Investment Compliance Volume: 13 Issue: 2
2012
18
- For more details:
 IRs-2012-15: Treasury, "IRS Issue Proposed Regulations for FATCA Implementation", Treasury
Department Documents and Publications. (Feb 8, 2012)
 Whitehouse, Tammy. "IRS Gives Long Lead Time for FATCA Compliance". Compliance Week (Sep
2011), P.P: 8, 10.
Proceedings of Annual Spain Business Research Conference
14 - 15 September 2015, Novotel Barcelona City Hotel, Barcelona, Spain
ISBN: 978-1-922069-84-9
transactions of banks with the outside world as its articles contradict with the national
sovereignty of countries. As a result, it is considered as a violation from the United States to the
national sovereignty of countries. However, others may consider it a way of securing the
American tax revenues and that implementing it is one of the ways of fighting tax evasion.
Therefore, obliging financial institutions to reveal their American clients' data is for the benefit
of the American Treasury and for the sake of fighting tax evasion.19
The Assembly of Caring for the interests of taxes payers staying abroad recommended the
necessity of being aware when writing the Form (9838).20
Some see that this law will cost the American Treasury more money than what it will gain as
many global financial institutions may refuse to provide the American Treasury with
information, or to reveal their clients' data to keep a good relationship with their clients; this may
cause them to refuse to meet the demands of the American Treasury even if it will stop dealing
with them.21
Implementing this law, we need to study the English experience in this field as the United
Kingdom decided to have an agreement with the United States to implement this law as it
hinders the British Financial institutions from investing with Americans as the law imposes a
penalty by deducting a tax from the main transactions of these institutions with its American
counterparts, or any of their assets in the United States of America. Consequently, they can’t be
compensated for these amounts of money unless they met the requirements of the FATCA and
notified the American Treasury with all the transactions of their American clients. As a result,
the American Treasury is going to notify all those institutions of late taxes of their American
clients so that they can retain the existing assets in their accounts and transfer them to the IRS.
Consequently, it can collect taxes and penalties from corporations outside America.
One of the challenges facing the Egyptian Tax Authority on Egypt’s approval to implement the
law lies in the answer to the below question:
Does the Egyptian government have the right to ask the American institutions to provide it with
all the data and transactions of their Egyptian clients staying in America with American
accounts?
Thirdly: A Field Study for Evaluating the Effects of Implementing the (FATCA) on Bank
Revenues and Total Income Tax Revenues on Bank Profits in Egypt
19
- Moore, Bela, "FATCA may cause legal strife for super funds". Money Management :( 03 Oct 2012).
- For more details :
 Merricks, Maria."FATCA: How it affects your firm". Professional Adviser (Aug 4, 2011) P.P:22-23
 Treitel, David."Advising your American clients. Professional Adviser (Nov 3, 2011) P.P: 25. 31
21
- Walker, David. "FATCA 'failure' will cost the US" Investment Europe, (Jun 28, 2012) P.P: 37, 38.
20
Proceedings of Annual Spain Business Research Conference
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ISBN: 978-1-922069-84-9
1The Study Objective:
The Field study aims at examining the hypotheses presented in the introduction of the study and
checking its accuracy concerning the effects of implementing the American law on bank
revenues, and also the losses that may result in case of the bank clients refuse to deal with the
banks to avoid revealing the truth of their transactions with the banks, as well as the effects on
the total tax revenues (Income Tax) as well.
2The population of the Study
The researcher tackled the following categories in his study:
2/1- Managing directors, managers of administrative and financial sectors, and financial
managers in banks in Egypt. The researcher tacked also a sample of 18 different banks in
Egypt; the total number of banks in Egypt has reached 32 banks with about 65 managers.
2/2- Those responsible for supervising the performance and the planning of monetary policies,
and supervising the quality of banking performance and the international agreements in
the Egyptian Central bank, as well as those responsible for the professional training in the
Egyptian Banking institutions whose number reached 50 administrators.
2/3- Technicians of the Egyptian Tax Authority from Field Directors and general managers of
the inspection division in the tax offices of the joint corporations in Cairo and Alexandria
and Large Taxpayer Center and the officials of conducting the international agreements,
who are 60 directors and administrators.
2/4- Auditors from a partner , a manager partner and a co-director of the audit sector,
professional staff in auditing offices in Egypt from foreign correspondents offices (big
four) who audit the financial statements of banks operating in Egypt, who are about 75
auditors of joint stock companies.
3- The Study Sample:
The researcher used a random natural sampling method, where the population of the study
consisted of 4 distinct groups. To specify the study sample, the researcher explored the study
community through a pilot study consisting of a sample of (10) units prepared as follows:
3/1Calculate the study sample:
The researcher used the ratio method to reach a sample representing the population of the study
in a statistically balanced way to meet the research results and that has been done as follows:
3/1/1-calculate the study sample when the withdrawal is by return.
n = z /2 * P * Q / d2
n: A sample size when the withdrawal return
Z: A tabular value under the curve normal distribution and the researcher has assumed that the
level of significance (= 5%) and thus
Z /2 = Z 0.025 = 1.096 ~ 2
P: A percentage in the population of the study and has been replaced parameter (the ratio in the
study population) by the statics value calculated by the survey. It has been found that the
results of the study (P = 80%)
Proceedings of Annual Spain Business Research Conference
14 - 15 September 2015, Novotel Barcelona City Hotel, Barcelona, Spain
ISBN: 978-1-922069-84-9
Q:
d:
The ratio represents a complementary factor community where Q = 1 - P and thus due to
the unavailability of the factor community. Q= 1- p
An allowable error in statistical inspection and it has been assumed that the error is in the
range of 5%. Applying the previous law by the results of the pilot study, the researcher
suggested the following:
n = 2 * 0.80*0.20 / (0.05)² = 72
3/1/2- calculate the study sample when the withdrawal returned without: The researcher used the
following law:
n
72
n0 = ‫ــــــــــــــــــــــــ‬
n= ‫ = ـــــــــــــــــــــــــــــــــ‬55
1+ n / N
(1+ 72) / 250
3/2- distribution of the study sample:
The researcher used the method of allocation Proportion in order to distribute the study sample to
the categories of the study by the size of the class within the community. (55) questionnaire
forms have been distributed, (7) of them were not answered and therefore, the number of the
correct forms is 48 forms. The following table shows the sample of the study distributed
according to four categories, as well as response percentages for each layer separately according
to the correct forms received from the study sample.
No
1
2
3
4
Table No. (1) The distribution of the study groups
Study Groups
The Real
Sample of the
Sample of the
study:
Study
%
Q
%
Q
Managers in Egyptian Banks
25
12
25
14
Officials of the Central Bank
17
8
15
8
Managers in the Tax Authority
29
15
29
16
Auditors
29
13
31
17
100
48
100
55
Total
4 - The Used Statistical Methods:
4/1 The data were described statistically through the repeated distribution and the percentage
distribution and some measures that are describable as the arithmetic mean and
coefficient of variation.
4/2 (Chi-Square) Distribution and hypothesis testing to determine the presence or absence of
any tendency towards a certain direction in the data making it more accurate.
5- Results and Hypotheses Testing
The First Hypothesis:
"There are no statistically significant differences among the answers of the study groups on
whether there are concrete effects of FATCA requirements on the revenues of the financial
institutions in Egypt."
Proceedings of Annual Spain Business Research Conference
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ISBN: 978-1-922069-84-9
First Question:
Foreign Account Tax Compliance Act (FATCA) aims mainly to inquire about the American
citizens' accounts in the foreign banks and financial institutions. The matter that could lead
the clients of American Nationality to be reluctant to work with the Egyptian banks, or lead
them to cancel their transactions fearing of giving any statements related to their financial
asset accounts and its returns to the American treasury and therefore, there will be a decrease
in the revenues of these banks as a result of the withdrawal of these clients from these banks.
The answers of the study groups shown in table (2-A)
Table no. (2- A)
The Extent of Difference between the Study Groups Concerning the Impact of Banks'
Commitment to FATCA Law on the Bank Revenues
Auditors
Managers in
Central Bank
Bank
Tax Authorities
Officials
Managers
%
Q
%
Q
%
Q
%
Q
92,3
12
86,7
13
87,5
7
83.3
10
Yes.
7,7
1
13,3
2
12.5
1
16,7
2
No
Chi-Square accounted= 0,419
Df = 3
level of significance= 0,938 (not function)
As: Q= frequency
Second question:
It addresses the required modifications from your opinion which avert negative effects on
bank revenues and the answers of the study groups are shown in table (2 - b).
Proceedings of Annual Spain Business Research Conference
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Table No. (2-b)
The Relative Importance of the Amendments Averting Negative Impacts on
Bank Revenues
Distributed According to the study Categories
Reasons
Managers in
Tax
Authorities
Accountants
Procedural amendments
Amendments in
information systems
Legislative amendments
Administrative changes
marketing Amendments
All the previous
amendments will lead to
the increase of bank
operational costs
Central Bank
Officials
Bank
Managers
R
1
V%
35.0
M
4.71
R
4
V%
47.0
M
4.19
R
1
V%
33.0
M
4.66
R
1
V%
34.0
M
4.75
5
49.0
3.99
1
34.0
4.81
4
42.0
4.12
4
41.0
4.03
2
4
6
36.0
42.0
51.0
4.63
4.32
3.75
2
5
6
44.0
50.0
0.52
4.76
3.98
3.85
2
6
5
35.0
49.0
44.0
4.42
3.87
3.95
2
6
5
36.0
51.0
48.0
4.69
3.55
3.85
3
38.0
4.53
3
45.0
4.36
3
39.0
4.29
3
39.0
4.21
As M= mean
V= Coefficient of variation
R= Ranking (Rank)
Third question:
It addresses the reasons that support the need to comply with the requirements of (FATCA) and
that show that its implementation will not lead to a decrease in bank revenues. The study groups'
answers are shown in the following Table (2 - C).
Table No. (2- C)
The Relative Importance of the Reasons Demonstrating That There is No Decrease in
Bank Revenues in Case of Bank Commitment
To the (FATCA)
Distributed according to Study Categories
Reasons
Accountants
Increased confidence on
the part of the U.S.
administration in the
management of banking
operations and then,
listing Egyptian banks in
the list of the reputable
banks.
To reach by the bank
policies to the highest
levels of transparency
and to a high rank in the
International
R
V%
M
2
37.0
4.43
39.0
4.31
3
Managers in Tax
Central Bank
Authorities
Officials
R V%
1
3
Bank Managers
M
R
V%
M
R
V%
M
31.0
4.77
1
36.0
4.12
1
35.0
4.65
39.0
4.59
3
43.0
3.72
5
48.0
3.76
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ISBN: 978-1-922069-84-9
classification by
applying the global
policies and committing
to the application of
international Treaties.
Listing Egyptian banks
in the lists of global
banks and thereby the
demand for its banking
services increases.
The increase of U.S.
investments in the
financial and banking
sector in Egypt as a
result of the good
reputation of Egyptian
banks to the U.S.
administration
Increased attention from
the international
professional associations
to qualify cadres of
global banking in Egypt
and hence, enhancing
their competence and
professionalism.
1
5
4
32.0
4.58
53.0
3.96
46.0
4.19
2
4
5
33.0
4.61
42.0
4.17
51.0
3.79
2
5
4
38.0
3.94
2
38.0
4.34
0.50
3.39
3
39.0
4.11
47.0
3.56
4
43.0
3.89
The results of the previous tables have demonstrated that there are no differences between the
answers of the study groups. That has emphasized the value of the Chi-Square test (calculated as
= 0.419) which means a lack of statistical significance as this value did not reach the extent that
makes it a function at a level of at least 0.05 and that at Degrees of freedom = 3. The results in
Table (2 - a) have shown a tendency toward the four categories of the study approval, where the
answers ranged between:: (92.3% - 83.3%) indicating that the implementation of the FATCA
law will lead to lower down the revenues of the Egyptian banks, see Table (2 - a).
Despite the lack of differences between the study groups concerning the existence of effects
when implementing the law causing the bank revenues to fall, there is a considerable variation in
terms of the degree of the relative importance of the amendments proposed to be applied when
complying with the requirements of the law for its positive impact on the bank revenues and for
that it reduces the potential loss as a result of the cancellation of some Americans to their
dealings with the banks that will report their financial assets and their returns to the U.S.
Treasury. The results of the operation have shown that most of the questionnaire respondents
have agreed on that minor procedural and legislative amendments come ahead of the required
amendments to be implemented when committing to implementing this law. Meanwhile, the
amendments in information systems and modifications marketing come at the end of the
priorities of the amendments. However, all of them agreed that the required amendments lead to
raise the operating costs of the bank, see Table (2 - b).
Also, Table (2 - c) the Variance a large variation in terms of the degree of the relative importance
which points out the lack of decline in bank revenues when committing to implementing the
requirements of the law, as most of the sample have agreed that the main reason for this is the
increased confidence on the part of the U.S. administration in the management of banking
Proceedings of Annual Spain Business Research Conference
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ISBN: 978-1-922069-84-9
operations and hence, listing the Egyptian banks in the list of reputable banks. However, Most
sample Surveyed have agreed on that there are other reasons coming at the end in their
significance for not decreasing the bank revenues when complying with implementing the
requirements of the law, such as: (Increasing the U.S. investments in the financial and banking
sector in Egypt as a result of the good reputation of Egyptian banks for the U.S. administration as
well as increased attention from professional associations to qualify the banking cadres in Egypt
and hence, enhancing their competence and professionalism).
The Second Hypothesis:
"There are no statistically significant differences among the answers of the study groups on
whether there are concrete effects of FATCA requirements on the revenues of the Egyptian
Tax Authority (Income Tax)."
The Fourth question:
The FATCA law aims mainly to review the accounts of Americans in foreign banks and
financial institutions, in addition to the commitment on the part of taxpayers before the IRS to
disclose all their earnings and their assets in the foreign accounts. Hence, this law is one of the
ways of fighting tax evasion.
Could the Egyptian Tax Authority revenues (income tax) be indirectly affected by being declined
as a result of the commitment of the banking institutions in Egypt to implementing this law? The
answers of the study groups are shown in table (3-A).
Table No. (3- A)
The Extent of Difference between the Study Groups Concerning the Impact of the
Commitment to Implementing the Law on the
Returns of the Income Tax
Auditors
Managers in
Central Bank
Bank
Tax Authorities
%
Q
Officials
%
Q
Managers
%
Q
%
Q
73,4
11
77
10
75
6
75
9
Yes.
26,6
4
23
3
25
2
25
3
No
Chi-Square accounted= 0,418
Df = 3
level of significance= 0,879 (not function)
As: Q= frequency
Fifth question:
The causes leading to lower the tax revenues (income tax). The answers of the study
groups shown in table (3-b)
Proceedings of Annual Spain Business Research Conference
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ISBN: 978-1-922069-84-9
Table no. (3-b)
The relative importance leading to lower the tax revenue (income tax).
Distributed according to the study categories
Reasons
The result of the
decrease in bank
revenues and hence, the
decrease of the income
tax on the profits of
these banks as a result
of many Americans
cancelling their
accounts and dealings
with the Egyptian banks
because of
implementing the
FACTA.
The end of some U.S.
investments in Egypt,
for the desire to go to
countries that reject the
implementation of this
law and thus, lower tax
revenues. The escape of
these investments
outside Egypt leads to a
failure in collecting
income tax on their
profits.
As a result of banks'
commitment to not
disclosing their
American clients'
transactions to the U.S.
Treasury in accordance
with the privacy law,
the U.S. government
will decide deduct 30%
of their dealings as a
penalty and thus, lower
their profits and hence,
lower the income tax.
Managers in Tax
Authorities
Auditors
R
V%
M
2
47.0
3.95
51.0
3.75
41.0
4.17
3
1
R
1
3
2
Central Bank
Officials
Bank Managers
V%
M
R
V%
M
R
V%
M
35.0
4.32
2
47.0
3.86
2
40.0
3.85
44.0
4.00
3
0.32
3.79
3
51.0
3.75
39.0
4.09
48.0
4.21
1
36.0
4.00
1
Sixth question:
Reasons for not decreasing the tax revenue (income tax) when putting the FACTA into action.
The answers of the study groups are shown in table (3-c)
Table No. (3- c)
Proceedings of Annual Spain Business Research Conference
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ISBN: 978-1-922069-84-9
The relative importance leading to not to decline the tax revenue
(Income Tax) distributed according to the study categories
Reasons
R V%
The small number of
American clients in
the Egyptian banks
Most financial assets
of U.S. investments
in branches of banks
outside of Egypt and
not in the Egyptian
banks and hence,
there is no impact on
the revenues of
Egyptian banks
The U.S. investor is
always seeking the
banking institutions
with the highest
profitability and the
lowest risk, away
from the Arab region
in order to avoid
political risks in the
Middle East.
If there will be
reciprocity between
Egyptian banks and
U.S. counterparts,
the U.S. banks will
notify the Egyptian
Tax Authority on the
transactions of the
Egyptians in the U.S.
banks and
consequently, there
will be a possible
increase in the tax
revenue as a result of
pursuing Egyptian
financial assets
abroad.
Managers in Tax
Authorities
Auditors
M
2
37.0
4.63
1
0.32
4.74
49.0
4.32
43.0
4.58
4
3
R V%
4
1
3
2
M
53.0
3.77
38.0
4.59
49.0
4.06
41.0
4.24
Central Bank
Officials
R
4
1
3
2
V%
M
53.0
3.92
37.0
4.48
47.0
4.19
42.0
4.32
Bank Managers
R
3
1
4
2
V%
M
43.0
3.68
0.32
4.43
51.0
3.55
39.0
4.21
The results of the previous tables have shown that there are no differences between the study
groups. That has emphasized the value of the Chi-Square test (calculated as = 0.418) which
means a lack of statistical significance, as this value did not reach the extent that makes it a
function at a level of at least 0.05 and that at Degrees of freedom = 3. The results in Table (3 - a)
have shown a tendency toward the four categories of the study approval, where the answers
ranged between:: (77- 73,4), see table no. (3-a)
Proceedings of Annual Spain Business Research Conference
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ISBN: 978-1-922069-84-9
Despite the lack of differences between the study groups about the existence of an impact on the
revenues of the tax administration that the income tax will decline when implementing the law,
there is a discrepancy in terms of the degree of the relative importance of the reasons that support
the necessity of the commitment of the Egyptian government to implementing the requirements
of this law taking into account not to affect the banking revenues by being declined and hence,
the indirect impact of lowering revenue on the department of tax (income tax) of those banks. So,
the reason that has come on the top of the list and all the study groups have agreed on is that:
(Most financial assets of U.S. investments in branches of banks outside of Egypt and not in the
Egyptian banks and hence, there is no impact on the revenues of Egyptian banks), but the reason
that: (The U.S. investor is always seeking the banking institutions with the highest profitability
and the lowest risk, away from the Arab region in order to avoid political risks in the Middle
East), has come at the end of reason list that ask the Egyptian banks to apply the requirements of
the law and not to fear the law enforcement. Look at table no. (3-c)
Results:
The first hypothesis:
SPSS results confirmed the exclude of this hypothesis: FACTA implementation will lead to a
decline in bank revenues and hence, a decline in its profits. The results of the operation data
showed that: all the members of the sample have agreed that the costs incurred by the bank as a
result of the amendments proposed by the researcher to comply with the requirements of the law
will lead to higher operating costs of the bank, and hence, a decline in the revenue on the short
term, but it will rise again as a result of the confidence of the U.S. government in Egyptian banks
and hence, directing not only U.S. investments, but also global investments to deal with Egyptian
banks.
The second hypothesis:
SPSS results confirmed the exclude of this hypothesis: Implementing the law will lead to a
decline in the revenues of the Egyptian tax Authority (income tax). It was evident from the
results of the data operation that there is no fear on the revenue of the Egyptian Tax Department
(income tax) because most of financial assets of the U.S. investments are in banks outside Egypt
and not in Egyptian banks. Hence, there is no impact on the revenues of Egyptian banks and
therefore, there is no impact on the profits of those banks.
Recommendations:
1- The necessity of agreeing on reciprocity when conducting an agreement for
implementing FACTA requirements.
2- Making the amendments proposed by the researcher when implementing FACTA, those
include procedural, legislative and marketing amendments.
Reference is arranged according the content and the pages of the research:
1- Hiring Incentives to Restore Employment Act provided incentives to combat
unemployment
2- Foreign Bank and Financial Accounts. Report on foreign financial accounts in banks
Proceedings of Annual Spain Business Research Conference
14 - 15 September 2015, Novotel Barcelona City Hotel, Barcelona, Spain
ISBN: 978-1-922069-84-9
3- Jorge Morley-Smith says, "Cutting claws of the FATCA", Money Marketing, (Nov
17, 2011)
4- Marsan, Dean, "The Global Financial System Must Now Implement a New US
Reporting and Withholding System for Foreign Account Tax Compliance, Which
Will Create Significant New Exposures-Managing This Risk" Taxes, (Sep 2010) PP:
128,144.
5- Hany Abu Afatouh , a study published on Wafad portal 21/8/2012,
http://www.alwafd.org/ 'D1J'6) / 254982
6- Fariz Huseynov, Bonnie K. Klamm, "Tax avoidance, tax management and corporate
social responsibility". Journal of Corporate Finance, Volume 18, Issue (4, September
2012), Pages 804-827
7- John Hasseldine, Gregory Morris, "Corporate social responsibility and tax avoidance:
A comment and reflection". (Accounting Forum), Journal of Accounting & Finance,
Volume 65, Issue 2, June 2012, PP: 804-827.
8- Christopher S. Armstrong, Jennifer L. Blouin, "The incentives for tax planning".
Journal of Accounting and Economics, Volume 53, Issues1-2, (February-April 2012),
Pages 391-41.
9- Roberta Calvet Christian, James Alm, "Empathy, sympathy, and tax compliance",
Journal of Economic Psychology, (13 October 2012)
10- Foriegn Financial Institution, such as: Banks, Stock exchange, insurance companies,
brokerage houses, Companies Financial Brokers, Mutual Funds, money funds ... and
etc.
11- Jaeger, Jaclyn. "IRS Seeks Input on Foreign Withholding Rules". Compliance Week
(Dec 2010) P.P: 33, 64.
12- Foreign Ministry against direct FATCA agreements between banks and US Russia &
CIS Banking & Finance Weekly. Financial Policy, (Jul 20, 2012).
13- Specialized workshop organized by the International Union of Arab Bankers and the
Union of Arab Banks on October 3, 2012 in Sharm El- Sheikh , on the operational
procedures for the application of FACTA.
14- Wolfe, Daniel, "Banks Face the Facts on FATCA". American Banker [New York] 29
Dec 2011.
15- Firms still unprepared for FATCA, "Investment Week" (Jun 11, 2012) PP: 32, 36.
16- Treasury Department Documents and Publications. "Joint US-China Economic Track
Fact Sheet-Fourth Meeting of the US China Strategic and Economic Dialogue", (May
4, 2012).
17- Act 88 of 2003 the law of the Central Bank and the banking system and cash
18- Luscombe, Mark, "Tax Trends: Proposed FATCA Regulations - Trying to Make It
Work". Taxes (Apr 2012): P.P: 56, 87.
19- Roger S. Wise, Mary Burke Baker, "Next phase of FATCA guidance arrives with
proposed regulations and announcement of possible intergovernmental approach".
Journal of Investment Compliance Volume: 13 Issue: 2, 2012.
20- For more details, see:
 IRS-2012-15: Treasury, "IRS Issue Proposed Regulations for FATCA
Implementation", Treasury Department Documents and Publications.
(Feb 8, 2012 )
 Whitehouse, Tammy. "IRS Gives Long Lead Time for FATCA
Compliance". Compliance Week (Sep 2011), P.P: 8, 10.
Proceedings of Annual Spain Business Research Conference
14 - 15 September 2015, Novotel Barcelona City Hotel, Barcelona, Spain
ISBN: 978-1-922069-84-9
21- Moore, Bela, "FATCA may cause legal strife for super funds". Money Management:
(03 Oct 2012).
22- For more details, see :
 Merricks, Maria. "FATCA: How it affects your firm". Professional
Adviser (Aug 4, 2011) P.P :22-23
 Treitel, David. "Advising your American clients. Professional
Adviser (Nov 3, 2011) PP: 25. 31
23- Walker, David. "FATCA 'failure' will cost the US" Investment Europe, (Jun 28,
2012) PP: 37, 38.
Proceedings of Annual Spain Business Research Conference
14 - 15 September 2015, Novotel Barcelona City Hotel, Barcelona, Spain
ISBN: 978-1-922069-84-9