FATCA – Time for Change
Washington’s countdown to the implementation of its Foreign Account Tax Compliance Act (FATCA) a world-spanning tax enforcement regime, is now on.
The campaign to rollout the controversial new tax legislation, which was signed into law by President Obama’s administration in 2010, has stepped up a gear after the US Treasury and Internal Revenue Service (IRS) released the act’s final rules on 17th January 2013, after missing two previous deadlines to do so.
FATCA was designed, say its proponents, to target the undeclared assets of American taxpayers who live abroad. The IRS estimates that tax evasion costs the US economy approximately $100bn a year, due in part to money hidden in offshore accounts, and FATCA, it hopes, will aid the recovery of an estimated $7.6bn over a period of a decade.
This new tax act will oblige all banks and other foreign financial institutions (FFIs) to register with the IRS and then report the financial activities of their American clients who have assets of more than $50,000.
Any non-American financial institution which fails to comply with FATCA will be made to withhold 30% of the US client income from 1/1/14, the date FATCA is, according to US officials, due to come into effect.
Whilst the primary aim of FATCA is a just and proper one – that of trying to catch tax cheats – it is also highly polemic, and fierce debate about it is raging, with many legal and financial experts arguing that it has far-reaching, unintended consequences.
One of its most high-profile critics, James Jatras, has branded FATCA as “the worst law most Americans have never heard of,” and established an international campaign to have it repealed by the White House.
Speaking to iexpats.com he said: “FATCA is a law that doesn’t achieve its purpose but does manage to hurt the US and global economy, and consumers worldwide, in almost any way conceivable. If that’s not the ‘worst law ever,’ what is?”
The matter of the huge costs that non-US financial institutions face in becoming ‘FATCA-compliant’ is another major concern, not least because these costs are likely to be passed on to their clients. Last year, asset management company, Schroders, estimated that FACTA will cost $500bn to bring in and $10bn per year to run.
Besides these unintended, yet important, ‘side effects’ of FATCA, there are other arguments for it to be abolished, including that it violates significant international trade laws; it compromises delicate international relations; and that it is a form of nation state bullying or imperialism on the part of the US.
All this, campaigners say, is to justify the recovery of lost taxes “of less than $1bn per year – enough to run the government for about two hours.” They insist that tax evasion is “a valid concern” but that “FATCA is the wrong way to address it.”
Undeterred, the US Treasury remains committed to its programme and, as we move forward through 2013, it is convinced that more and more countries – and therefore their financial institutions – will sign-up to its FATCA regime.
By Lisa Smith who is the Lead Editor and Writer at www.iexpats.com