Financial institutions have generally fallen into two categories in their reactions to FATCA: some seem to be leaning towards trying to qualify under “deemed compliance” exceptions, while others have urged their governments to shred privacy laws so they can dump all the costs and harms of compliance onto the public. But as far as I know this is a first: an industry body suggesting that its members ignore FATCA entirely. A couple of different links to the story, in case one or the other ends up trapped behind a paywall: IFAOnline.co.uk and Investment Week. Quotes below.
“If you are not invested in the US, or have minimal exposure, it might be better to take the modest hit from the 30% withholding tax as opposed to racking up much more substantial costs from all the administration in complying,” said Ian Sayers, director general at the AIC … “For these trusts the impact would be too small, so it is not worth signing up. VCTs [ed: venture capital trusts], for example, are predominately made up of UK retail money and UK investments, so they may not have to sign up and in fact will be better off not complying.”
The AIC’s website has a few other FATCA-related items, including their June 2011 submission regarding Notice 2010-60, but nothing that would have made me suspect they’d end up take such a strong stance against FATCA. Clearly, Mr. Sayers is betting on the idea that FATCA withholding on “foreign passthru payments” to non-participating institutions is so byzantine that it will be abandoned as unworkable in advance of the current January 2017 deadline. Whether this stance will in the end prove to be brave or foolhardy, it’s heartening to see someone from the industry finally standing up to this nonsense.
Update: Just as I was posting this, John left a comment about this exact same article:
So they’re really talking about de facto disinvestment. The cost of paying the 30% is less expensive than complying with FATCA in the AIC’s eyes.
The US is in denial about the “FATCA effect” on inward investment. If many of the world’s smaller investment firms come to the same conclusion, this is an example where the loss of capital gains taxes offsets any revenue could gained via FATCA reporting.
The FATCA regime will actually cost the US money to run. But bloody minded senators like Levin know better!
Wake up Carl it takes only $53B of loss inward investment (held for more than a year 15% capital gains) to negate the $8B gain in tax revenue that FATCA allegedly provides per annum. $53B is less than a drop in the bucket – the maths say the US will lose out if it persists with FATCA.
Does FATCA give smaller investment firms any incentive to increase their holdings in the US – no.
FATCA has both fixed costs (in particular, implementation of data collection procedures and IT systems) as well as variable costs per customer or per account. John’s comments make me wonder why more smaller institutions — which have fewer customers over whom to distribute the fixed costs — haven’t come to the same conclusion as the AIC: that paying the 30% tax is cheaper, especially if that 30% tax is only charged on a small portion of your holdings — and especially if you divest yourself of those holdings before 2015 when the 30% withholding on gross proceeds paid to non-compliant institutions comes into effect.