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4 reasons why FATCA is here to stay

There's renewed energy in the ongoing campaign to repeal the US foreign tax law. But two global tax experts from PwC and Deloitte say it's unlikely that FATCA will be repealed.

Why was FATCA needed?

The Foreign Account Tax Compliance Act (FATCA) was signed into law by Obama on 18 March 2010, with the aim of helping the Justice Department and the IRS collect tax revenue more effectively and efficiently. The US treasury was losing more than $100 billion annually as a result of offshore tax non-compliance. But ever since its introduction, the legislation has come under fire for being costly and complex for foreign financial institutions (FFIs) to implement. Several bills have been introduced in the US to repeal FATCA but under the Obama administration, none have succeeded. With a new administration in the White House, there has been a renewed push to get rid of what some have 'called a “toxic global tax law”. 

And despite reports in the media that the current campaign to undo FATCA will get a smooth passage through the US political system, some US tax experts are sceptical. Denise Hintzke, managing director and global tax leader at Deloitte Tax says: “There have been calls for FATCA's repeal since it was introduced in 2010. There might be upticks right now because whenever you see a change in government, it can be seen as an opportunity to introduce a bill and sway things.” Hintzke adds: “We've seen no clear indication that FATCA is likely to be repealed. In many organizations, FATCA has almost become business as usual.”

Why the wrath against FATCA?

The main objections to FATCA include accusations that it has “wreaked havoc on the global financial system”, that it violates the sovereignty of other countries and that it is damaging to the American and global economies. There have been reports that FATCA has made it difficult for US nationals to open bank accounts abroad.

Tax experts acknowledge that there is discontent with FATCA but argue that the main cost of implementing the new reporting regime was borne by FFIs, not individuals. In any case, many recognise that it was costly and burdensome to implement and that this begs the question of whether the results are proportionate with the effort and cost of implementation. However, for the US government, FATCA makes economic sense. Robert Bridson, FS tax partner at PwC, says: “Politically it was an easy sell – foreign institutions bear the costs and the US government gains information and revenue. If FATCA didn't exist, the tax bill for US residents would potentially go up, which would not be popular.”

4 reasons why FATCA will stay

Here are four reasons why the US will keep FATCA:

1. FATCA tackles offshore tax non-compliance

The US treasury was losing more than $100 billion annually as a result of offshore tax non-compliance and FATCA is going some way to tackle this. As PwC's Bridson points out, if the US government didn't recoup this tax, it would have to raise tax from other sources and this could mean taxing US residents more, which would not be politically popular.

2. Implementation already done

Critics of FATCA talk about the cost and complexity for FFIs of implementing the systems to report to the US government. The legislation has already been in effect for several years and the work to implement new compliance systems was completed before the 2013 deadline. FFIs have therefore already put in place the FATCA requirements, which built upon the previously existing AML/KYC requirements to identify account holders. PwC's Bridson says: “Financial institutions have now made significant strides towards implementing reporting capabilities to comply with FATCA. They have already gone through the pain, so to repeal it now would mean making these processes redundant.”

3. FATCA built on previous tax requirements

FATCA didn't introduce a tax reporting requirement that didn't previously exist. US citizens living in other jurisdictions were obliged to provide the US tax authorities with information on their assets and income abroad even before FATCA. However, FATCA introduced a steep financial penalty that is too significant to ignore: FFIs are required to withhold 30 per cent of payments made to FFIs, non-financial foreign entities and individuals that are not in compliance with FATCA requirements. Deloitte's Hintzke says: “US individuals overseas have always had responsibility to file US tax returns – if they see that this burden has increased, it raises the question of whether some people may not have been complying previously and now don't have a choice.”

4. Global trend is towards financial reporting transparency

Repealing FATCA would go against the global push towards transparency in financial reporting. The OECD's transparency agenda includes not just the Base Erosion and Profit Shifting (BEPS) initiative but also the Common Reporting Standard (CRS). More than 100 participating jurisdictions have now signed up under CRS to disclose whether assets or accounts are properly recorded for tax purposes. FATCA is very much in the same spirit of financial transparency as the CRS and to repeal it would seem like a step backwards.


CTMfile take: To sum up, the tax experts CTMfile spoke to don't see significant benefits in repealing FATCA and, while they recognised that it has caused mixed feelings and angst for some, it has introduced a reporting regime that, combined with the punitive withholding mechanism, is effective in creating tax revenue for the US government.


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Comments

By Anthony E. Parent, Esq. on 7th Mar 2017:

Deloitte’s embarrassing advocacy for FACTA is evidence of either complete incompetence or self-serving malfeasance.

While FATCA has helps the bottom line of a very small segment of the population, I assure you it does nothing but bring pain for anyone else.

The TaxPayer Advocate admits as much. And IRS employees can’t stand FATCA. And billions of costs were offloaded to foreign banks. And regular people have had their lives ruined…simply because a $20 billion dollar a year company wanted another billion.
 

Yet FATCA proponents in 2010 only claimed FATCA would bring in $800 million in revenue a year (check the PAYGO budget details). Yet now? This article claims it is bringing in $100 billion a revenue a year? Where are we getting this figure from? I have an idea, it comes from a place that is usaully dark.

The FATCA quagmire, is my Exhibit 1 that government has become obsolete. And yes, FATCA is a huge boon for shady compliance firms, is suffocating everyone else. And since we are allowed to invent numbers, I claim that FATCA is costing the US $200 billion a year in lost revenue.

This in an unethical, immoral shakedown that gives lip service to increasing tax revenues, but in fact, only benefits those who advocate for the law.

Look folks, this is the only life you have. On your death bed do you really want this to be a legacy? A FATCA advocate? Really? “That’s right my son, I was a part of an international conspiracy that used the force of law to mandate people to purchase a counter-effective service from me they previously didn’t need. I didn’t represent my clients. I represented me.”

As you stare down into that abyss, all of your personal fortune and professional esteem will offer you no protection. Turn back now. Repeal FATCA


- Anthony E. Parent, Esq
Parent & Parent LLP
https://www.irsmedic.com

By Jenn S on 7th Mar 2017:

Amen Anthony E. Parent!!! This article is infuriating. It completely underestimates the chaos this causes for the honest average American who is trying to be a good law abiding citizen.  In U.K., banks don’t want to give us accounts, locals don’t want to start businesses with us, we are double taxed when selling our properties (pay tax upfront here and to USA at sale time), taxed on ‘locally tax free’ savings, and the forms are so complicated you either have to pay 1000s (when owe nothing or <100 dollars) or risk being fined minimum 10k for a tiny error that often doesn’t change any tax owed!

By Jay Noone on 8th Mar 2017:

Thank you Anthony Parent. Very poor arguments in this article, and no understanding or acceptance of the situation Americans abroad find themselves in.

By Keith REDMOND on 8th Mar 2017:

The bottom line is that the US tax compliance industry has ZERO interest in defending 9M Americans living overseas plus green card holders living overseas, plus Accidental Americans, plus other countries’ diaspora living in the United States, and their respective families vis-à-vis the serious damage as a direct result of FATCA.

The US tax compliance industry will not acknowledge the US government threat and bullying known as an Inter-Governmental Agreement (IGA) on other countries to implement FATCA. I work with the aforementioned populations globally and witness the damage done EVERY week.

The US tax compliance industry is ONLY capable of thinking within the American bubble when it comes to FATCA and the US practice of Citizenship Based Taxation.

The US tax compliance industry is not a friend of the aforementioned populations. The evidence is this article. The aforementioned populations are cash cows to them, full stop.

Keith REDMOND
American Overseas Global Advocate
Paris, France

By Kevin Mulvaney on 8th Mar 2017:

The affirmation that the US Treasury was losing USD 100 billion per year is pure fantasy. The US cannot ascertain the exact number of US persons (those subjected to US Federal tax laws) living outside the US. Consequently, on what are they basing that conveniently round USD 100 billion figure?

FATCA will never be business as usual. It is a US Diktat that was forcibly shoved down the throats of countries around the world at the latters’ huge expense and with strictly no added value whatsoever for these countries. FATCA is supposed to be founded on the principle of reciprocity but the US has so far welched on its promise to reciprocate and will never do so. To do so it will have to overcome colossal domestic opposition in the legislative and judicial arenas as well as lobby groups defending the US financial industry who do not want to have to go through the trouble and expense of having to comply with FATCA, for no added value to them. Meanwhile the rest of the world is realizing it has been cheated by the US and resentment is growing, understandably.

US persons living outside the US are being denied financial services accross the board: investment portfolios, mortgages, checking and current accounts, bank guarantees, but also life insurance policies and pension funds. Job discrimination is also rampant, especially for US persons in executive positions. “There have been reports….”? The practice is systematic not isolated and US Congress has been informed of this through hundreds of personal testimonies. So far, the harm done to these US persons has been systematically downplayed if not downright ignored, as is the case demonstrably in the present article.

FATCA is the blind, brutal and obtuse enforcement arm of the unique, quasi-feudal, embarrassingly patriarchal US system of taxation founded on citizenship (citizenship-based taxation / CBT) rather than strictly on residence (residence-based taxation / RBT). Of the 244 existing tax jurisdiction existing in the world today, all but two (the US and dictatorship Eritrea) practice RBT. You think the US would get the hint but, no, it prefers to hang around with Eritrea rather than join the rest of the world and practice RBT, the universally accepted standard of taxation.

So yes, the US diaspora has in large part not been compliant with what it quite rightly considers an alien, extortionist practice. With the exception of the above-mentioned two anachronistic states, no country in the world taxes its non-resident diaspora. The US has no business doing so either. It is not the US diaspora (who are essentially law abiding people who pay taxes in the countries where they live) that needs to change its ways but US tax laws that need to conform to the realities of the modern world in which we live.

FATCA is not at all in the same spirit as the CRS, precisely because of the inherent difference between CBT and RBT. While the latter has legitimacy in that it does indeed offer transparency and helps fight against tax evasion, the former primarily constitutes fiscal inquisition. Let us not forget that the US diaspora does not partake in any way whatsoever in US society, does not receive anything of susbtance from the US, does not ask anything from the US and does not cost the US anything. Subjecting the US diaspora to US laws extra-territorially is inherently abusive and needs to stop.

By Eric on 9th Mar 2017:

Of the alleged $100 billion in offshore tax non-compliance, how much is due to individuals in the US hiding assets, how much is due to individuals outside the US not filing taxes, and how much is due to corporate transfer mispricing and other aggressive borderline-illegal tax strategies facilitated by Deloitte and PWC?

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