FATCA

February 6, 2013 4 Comments
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An interesting one getting little coverage at the moment:

For those who haven’t tracked the issue closely – and given the abysmally inadequate media coverage to date that is most people – the Foreign Account Tax Compliance Act (FATCA) seeks to strong arm every financial institution in the world into doing the job of the IRS. FATCA is said to be about stopping tax evasion, but while its backers argue that there is $100 billion lost (a dubious claim) to tax evasion each year, government bean counters score FATCA as bringing in less than $1 billion annually. The price for 1% effectiveness, by their own numbers, is hundreds of billions in worldwide compliance costs, reduced foreign investment in the US and the loss of jobs.

FATCA Had No Committee Review And No Deliberation

FATCA was passed as an afterthought to pay for the HIRE Act in 2010. Given the lack of deliberation – there were no hearings or debate over the issue – it’s no surprise that FATCA was written so poorly as to be nearly unenforceable. Establishing agreements between the Treasury Department and each individual financial institution was not going to work. The logistics were a nightmare even without the additional obstacles posed by local privacy laws that conflicted with FATCA’s dictates. To get around these problems, the bureaucrats got creative and devised a scheme to trick foreign governments into relinquishing their sovereignty: intergovernmental agreements (IGAs).

The IGAs relieve Treasury of the responsibility to deal with institutions individually, farming that out to foreign governments instead. In return, foreign governments are promised reciprocation from the US.

But it’s all a sham.

Foreign Governments Are Being Conned

The foreign governments think they are signing treaties, which Treasury happily lets them believe. Moreover, they don’t understand the US political system well enough to understand that Treasury cannot make law – only enforce it. Unlike a parliamentary system, the US government is based on a system of checks and balances that separates  power between different branches, the FATCA law does not grant any authority to sign such agreements and promise reciprocation.

Treasury Acting Without Authority

Continuing their pattern of acting first and asking for authority later, if at all, the administration is reportedly prepared to ask Congress for authority to compel US banks to provide reciprocal reporting for IGA partners. Forcing US banks to comply with FATCA-like reporting requirements, a prospect not authorized in FATCA itself, significantly raises the domestic costs of a law already unable to be justified on cost-benefit grounds. But offering up domestic institutions on a silver platter serves the administration’s purpose, which is to trick as many countries into enforcing FATCA as possible so that Treasury doesn’t have to.

Congress, having changed hands since 2010, is likely to tell the administration to go pound sand. They certainly ought to. The question is whether this will wake up foreign governments to the fact that they are being hoodwinked. The US will not burden itself the way FATCA burdens the rest of the world, no matter what the tax bureaucrats are promising. Moreover, Treasury has set up the IGA’s to allow itself the power to alter the deals at any time going forward, as exposed by James Jatras, anti-FATCA lobbyist and manager of repealfatca.com.

4 Responses to FATCA

  1. Steve Klaus
    February 6, 2013 at 8:26 pm

    The Administration’s reported plan to ask Congress for authority to require US banks to find non US citizens’ accounts and report the details of the accounts to the IRS (to then be reported onward to the non US citizen’s government) is a golden opportunity to strongly lobby for FATCA’s repeal. The US banks will, rightly, resist having to take on the cost and expense of a US FATCA equivalent and become agents, in effect, for every government on the planet – just as the non US FFIs are being compelled to become agents of the US government. In the case of an IGA the taxpayers of each country that enters into the IGA have to pay for their government’s compliance with FATCA. This is the worst law, and most ill conceived law, in decades (perhaps since the confiscation of gold by FDR or prohibition). FATCA is ruining lives, makes no sense, and should be strongly resisted by foreign governments. Congress needs to know its unintended effects and repeal it.

  2. February 6, 2013 at 11:08 pm

    Congress needs to know its unintended effects

    Sure it will now.

  3. Furor Teutonicus
    February 7, 2013 at 2:56 pm

    XX stopping tax evasion XX

    you want to stop “tax evasion” change the laws to cover the “loopholes”.

    UNTIL that point, it is not illegal, and is, in fact almost a built in “get out claus.”

  4. February 8, 2013 at 7:04 am

    Although FATCA is nothing new in the US Governments continued attempts to enforce the extra-territoriality of its own laws, the impact that it has had on ordinary Americans working abroad is devastating.

    The burden of these laws on foreign institutions has led to them rejecting any new customers with US ties, be it a US passport, Green card or even just a US birth-place. Equally, existing customers with US ties have had their accounts terminated or reduced to the barest non-interest bearing checking accounts.

    For many FATCA has been the straw that broke the camels back and has resulted in US citizens either giving up attempting to live outside the US and going home or alternately giving up their US citizenship altogether and taking up the citizenship of their new residence, especially where they have married non-US citizens and are entitled citizenship through marriage.

    Given the lifelong indoctrination that US citizens receive from Kindergarten, High School and University as well as the patriotism invoked at ball games and other communal events, giving up US citizenship is a hard thing to undertake. It is often seen as unpatriotic by family members and other US citizens and can lead to lifelong post-traumatic stress.

    The fact that it is the US Government itself that is doing this is beyond contempt.

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