April 1, 2013
By James Jatras
Writing today in the American Banker, e-money researcher and crypto economist Jon Matonis gets dead right what a lot of the conventional “wisdom” gets wrong: FATCA (the “Foreign Account Tax Compliance Act”), is far from a “done deal”:
“Cited as a hindrance to foreign investment that would ultimately dampen U.S. economic growth and threaten American jobs, the FATCA penalties for noncompliance provide a strong incentive for overseas investors to avoid U.S. depository institutions altogether. Tax Management International Journal cites 11 reasons why FATCA must be repealed. Reason number one is ‘the height of arrogance.’
“It is either the reciprocity angle or the cascade effect of China’s reluctance that has the greatest potential to derail FATCA.”
Matonis picks up what a lot of other professionals – especially the legion of compliance vendors, the only likely beneficiaries of a “revenue enhancer” that would certainly lose more money than it “recovers” – have completely missed. Foreign governments increasingly are likely to demand from the U.S.real, not token, “reciprocity” in information exchange, but they won’t get it. Some particular problems loom in Asia with respect to “intergovernmental agreements” (IGAs) essential to FATCA’s survival:
There will probably be so few U.S. citizens holding bank accounts in China that the cost of implementing FATCA outweighs the benefit to China’s financial institutions. Also, the Chinese taxpayers with U.S. bank accounts appear to be of minimal interest to the Chinese government, according to Lisa Smith of iExpats.com.
In addition, while FATCA’s 30 percent withholding penalty (more properly: confiscation, expropriation, seizure, sanction – take your pick) on “recalcitrant” foreign institutions (i.e., those failing to comply with an edict they have no legal or moral duty to obey) has hung like the Sword of Damocles over the entire FATCA discussion, it is beginning to sink in that the costs of complying with FATCA are simply unacceptable:
“Although experts in the FATCA preparation business tend to agree that moving forward with expensive FATCA compliance plans is the prudent and logical step to be taking now, a comprehensive and worldwide FATCA roll-out is far from a foregone conclusion. For those financial institutions and their shareholders offended by the overreaching legislation and lack of respect for mutual sovereignty, the cost savings alone may start to make FATCA’s non-compliance penalties look tolerable.”
If domestic and foreign institutions were to put even one percent of the time and resources they have been pouring into preparing to comply with FATCA, or convincing non-U.S. governments to sign onto IGAs, FATCA likely would be gone already. The time to get behind the repeal push is now!
James George Jatras
Visit www.RepealFATCA.com for more information on “ the worst law most Americans have never heard of”