Home » Operations » Best Practices & Benchmarking in Operations

The FATCA debate rages on

The US law requiring US citizens living abroad to submit financial data and documentation on their foreign income and assets, or face a stiff penalty, has caused much concern and a vocal campaign is lobbying US policy makers to get the Foreign Account Tax Compliance Act (FATCA) repealed. At the same time, some tax experts argue that FATCA simply enforces requirements that existed before FATCA was introduced in 2010 and that it's perfectly reasonable for the US government to demand financial reporting on overseas earnings and assets.

Corporate treasury view on FATCA

However, in a private gathering of corporate treasurers last week, several treasury practitioners said they would like to see FATCA repealed and said that it can cause an added burden for companies with many US employees. Some treasurers said they have chosen to do business with a European subsidiary to avoid US tax reporting.

Another corporate treasurer who contacted CTMfile by email and wished to remain anonymous, also mentioned the considerable documentary workload and that, due to long and complicated forms, support from professional tax consultants is needed, both on the corporate and on the bank side. Anecdotally, the treasurer said that there were cases in which the same consultancy would be employed to check a form for both the corporate and the bank, picking out discrepancies in the same form it had been responsible for filling in. The treasurer said: “It is administrative overhead cost as far as I can see. We have to fill in tons of documents for each company which have expiration dates on them and requirements to notify about changes within 30 days. The big tax firms must be loving this as the forms are so complicated at times that we have to involve them to fill them in as the banks are not allowed to give clarification and then the banks employ the same consultants to check the forms. We even had cases that the same firm disagreed internally what they had us fill in and what the bank felt was correct!”

FATCA's five failings

The campaign to have FATCA repealed is keeping up its momentum. Earlier this week, a letter to Speaker of the House Paul Ryan and other US senators argued the following five points:

  1. FATCA fails in its primary goal to catch wealthy tax cheats;
  2. it ensnares innocent Americans with excessive reporting requirements and draconian penalties for the slightest oversights;
  3. FATCA makes US citizens living and working abroad toxic assets in the eyes of both financial institutions and employers;
  4. the onerous law's compliance costs far outstrip the revenue it collects; and
  5. it encourages other nations and international organizations to pursue aggressive tax grabs that threaten American businesses and the global economy.

Two sides of the FATCA debate

While critics of FATCA have been known to use inflammatory language to further their cause, alleging that the legislation “has been wreaking havoc with the global financial system” and that it has turned US citizens living abroad into “toxic assets”, there are some genuine concerns that the documentary burden is excessive for individuals and that the legislation does not tackle the real problem of tax evasion by wealthy individuals.

The other side of the argument asserts that FATCA is largely in line with current global anti-money laundering (AML) and know your customers (KYC) reporting requirements, which are being adopted by governments around the world. It's also in keeping with the current spirit of increased financial transparency, which is more pressing than ever considering the Panama Papers leak last year, which revealed the extent of tax evasion by high-net worth individuals. The OECD's push towards transparency, with the BEPS initiative and the Common Reporting Standard, is also leading the way towards increased financial accountability and less tolerance of fiscal avoidance.

CTMFile recently published these two articles presenting views on both sides of this heated debate:

One of the advocates of repealing FATCA, Nigel Green, said: “Every government has a right to see its laws enforced and tax evasion investigated and prosecuted. That's not what FATCA does, though. It has punished everybody, innocent as well as guilty, and consumers and taxpayers worldwide. It's a windfall for the compliance industry and no one else.”


CTMfile take: We are interested in constructive criticism: How exactly should the US government make tax compliance less complex and burdensome for US citizens abroad, while also making the law more effective in collecting taxes owed by wealthy individuals and companies?


This item appears in the following sections:
Operations
Best Practices & Benchmarking in Operations

Also see

Comments

By JC DoubleTaxed on 23rd Mar 2017:

Answer to CTMfile question:  shift to territorial/residence based taxation, like all other OECD nations.

By Karen on 23rd Mar 2017:

80% of US tax returns filed from foreign addresses have zero balance due. Taxing non-resident citizens is not only contrary to accepted international practice, it is inefficient. Compliance costs for US expats are many times higher than for domestic taxpayers, with tax returns of 50-100 pages all to show zero balance due at a cost of $250 or more for tax preparation (take a look at the Paperwork Reduction Act notice on Form 8621 - the form to report an expat’s investment in a LOCAL index fund).  US tax law places US expats at a disadvantage relative to expats from other countries. It is past time for the US to join the rest of the world in taxing based on residence rather than citizenship!

By Daniel on 2nd Apr 2017:

How can one help the US government to stop harming the unrepresented abroad with double-taxation?  Residents are subject to the taxation of the jurisdictions in which they reside.  The US government could become compliant with taxation if it correctly taxed the residents residing within its own jurisdiction.  Do you believe that there is any chance that the US government will ever become tax-compliant by believing in fair share and tax justice, limiting its tax rules to its tax jurisdiction?

By Kevin Mulvaney on 2nd Apr 2017:

US persons are toxic to foreign financial intermediaries, it is an easily verifiable fact, not inflamatory talk. Plus, they are certainly not assets but rather contingent liabilities. There exists a systematic denial or at least severe restrictions of financial services available to US persons, not counting job discrimination. FATCA is the obtuse, bullying enforcement arm of US Fed fiscal laws that belong to another century, based on citizenship rather than on residence. All fiscal jurisdictions in the world use residence based taxation. Only the US and Eritrea (condemned by the UN for its fiscal collection practices) use citizenship based taxation. Wake up USA!

By Donna on 2nd Apr 2017:

Filing for 2 countries is crazy. Most people dread having to file once…the cost of an accountant, the work gathering up all the necessary papers and statements and the fear of mistakes. Think about having to do it twice and for two different countries with different laws and requirements….no…it is downright wrong! The US has to move to residence based taxation as the rest of the world uses. Let’s get modern US!! As far as Fatca goes it costs the world way too much money trying to give the US all of this data. People need to look up the costs for this. Who is paying for it? The banks can’t pay so they are passing it on to their customers. The US has to figure out another way to do it without burdening the world

Add a comment