Calls for Repeal of FATCA as Part of Tax Reform Framework
ACA: “FATCA is bad law on all fronts and should be repealed.”
April 5, 2013
In an April 4, 2012, submission to the leadership of the International Tax Reform Working Group and the Financial Services Tax Reform Working Group of the Committee on Ways and Means of the U.S. House of Representatives,American Citizens Abroad (ACA) – the flagship association representing the interests of some seven million Americans residing outside the United States – has again called for repeal of FATCA (“the Foreign Account Tax Compliance Act”) as part of a comprehensive overhaul of the U.S. tax system. While focusing on the particular damage FATCA does to U.S. citizens living abroad, ACA pulls no punches in spelling out the broader harm this 2010 law (now pending implementation) threatens to inflict on the American economy as a whole, while failing in its stated purpose of curbing offshore tax evasion.
Special attention should be paid to the international consequences of the U.S. Treasury Department’s attempts to implement FATCA via “intergovernmental agreements” (IGAs), which are nowhere mentioned in the law and have not been authorized by Congress. IGAs threaten to compound the harm inflicted by this misguided legislation by repatriating FATCA’s costs on U.S. domestic institutions (and American consumers) under an unwise, unworkable, and unbalanced attempt at “reciprocity” with foreign governments:
“Foreign governments worldwide are furious that the U.S. Congress has the arrogance to exercise financial imperialism, to unilaterally impose its laws on the rest of the world, to require foreign financial institutions to spend tens of billions of dollars to comply with U.S. law and to require FFIs to break privacy laws in their own country in order to comply with FATCA, exclusively for the benefit of the United States, with no reciprocity, let alone any prior negotiation.
Since FATCA has proved unworkable as legislated, the Department of the Treasury has been obliged to negotiate IGAs with foreign governments to circumvent the privacy issue and to introduce a limited form of reciprocity, but resentment abroad remains great. There will be a backlash and immediate consequences. The reciprocity agreements in the IGAs create a major burden for U.S. financial institutions now required to filter out by nationality all accounts owned by foreign residents and to report on those accounts to the respective governments.”
RepealFATCA.com applauds ACA’s position and calls on other impacted interests to engage directly in achieving FATCA’s repeal before the worst aspects of this misguided law go into effect. 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”
The full ACA text follows:
AMERICAN CITIZENS ABROAD
THE VOICE OF AMERICANS OVERSEAS
Subject: Comments – International Tax Reform Working Group and Financial Services Tax Reform
Working Group, Ways and Means Committee
Attention: Representative Devin Nunes and Representative Earl Blumenauer
Representative Adrian Smith and Representative John Larson
Concerns: Recommendation to repeal FATCA (Foreign Account Tax Compliance Act)
April 4, 2013
American Citizens Abroad (ACA) was one of the first organizations to call for the repeal of FATCA soon after passage of the law in 2010 and maintains its recommendation that Congress should repeal FATCA within the framework of tax reform seeking an efficient, fair tax system. It is evident from the perspective overseas that:
- FATCA will not achieve its purpose of tracking down tax evaders;
- FATCA is destroying the community of seven million Americans abroad;
- FATCA creates serious damage to the United States and its economy.
FATCA will not achieve its purpose
FATCA is 1984 in the world of George Orwell. Big brother will have access to all personal information, disregarding personal privacy and risk of identity theft. But big loopholes are already apparent. FATCA will lead to a two-tier banking system worldwide – those countries which adhere to FATCA and those which refuse. Russia has already refused and rumour is that the Chinese will also either refuse outright or find an indirect path to circumvent FATCA reporting requirements. The position of other Asian countries, Middle East countries and Latin American countries is not yet known.
The costs of implementing FATCA are absolutely disproportionate to the expected additional tax revenue. The Joint Committee on Taxation estimates additional tax revenue of only about $750 million a year for ten years. Compliance, however, of foreign financial institutions (FFI) will cost tens of billions of dollars and U.S. financial institutions face similar costs due to administrative requirements on payments and the reciprocity measures introduced in the Intergovernmental Agreements (IGA). FATCA has already engendered enormous cost for the IRS and Treasury Department through the hundreds of thousands of hours spent by top tax specialists devoted to drafting regulations and negotiating with foreign governments. How many more millions will be required for the IRS to administer and analyze the mass of information flows scheduled to begin in 2014? Congress has never subjected FATCA to a cost/benefit analysis.
The IRS does not need FATCA to pursue tax evaders. Even prior to the passage of FATCA, the IRS had a whole basket of tools, including the QI program, the John Doe summons, Tax Information Exchange Agreements, Mutual Legal Assistance Treaties, the Swift Agreement and the whistleblower program. Furthermore, the IRS Overseas Voluntary Disclosure Program (OVDP) has already brought in over $5 billion in just four years. The OVDP requires participating taxpayers to provide all information on international networks facilitating tax evasion. Consequently, the IRS now has a vast data base to mine for efficient law enforcement, whereas FATCA requires the IRS to look for a needle in a haystack of a massive amount of irrelevant, disparate data, costly to administer and inappropriate for effective law enforcement.
FATCA is destroying the community of seven million Americans abroad
American citizens have become pariahs in the international financial community because of FATCA. The cost of administering FATCA and the perceived legal threats are so high that FFIs prefer not to retain or take on American clients, who represent only a tiny fraction of their total clientele. ACA has received multiple testimonies of Americans residing overseas who have had bank accounts in their country of residence closed, who have been denied entry into foreign pension plans and insurance contracts, who have had mortgages cancelled, who have been pushed off of joint-bank accounts held with foreign spouses, who have lost access to credit cards and who have been forced into a cash economy.
A few major financial institutions may still allow cash accounts, but certainly no investment accounts. PFIC reporting rules exclude investment in foreign mutual funds. Only the few wealthy with financial assets in excess of $1 million have access to SEC registered subsidiaries of foreign banks for investment purposes. In addition, U.S. financial institutions refuse to take on American clients with a foreign address because of the Patriot Act. The average American abroad is shut off from all avenues for personal investment.
In this environment, it is difficult and complicated for Americans to move overseas, establish normal banking relationships required for modern life and gain international experience.
Business opportunities for Americans overseas are blocked. Foreign partners no longer accept Americans in new ventures because FATCA requires reporting to the IRS of any U.S. person owning 10% or more of an unlisted foreign corporation or partnership. Some American-owned businesses overseas have closed down because of lack of access to banking facilities.
FATCA automatically categorizes any American abroad as suspect and ostensibly discriminates against Americans abroad.Americans overseas must report their foreign financial assets on Form 8938 with their 1040 under threat of heavy penalty for non-reporting, but in the eyes of Americans abroad, these assets are local, not foreign. Americans residing in the United States have no such comparable reporting on their U.S.-based assets.
FATCA is contrary to the Universal Declaration on Human Rights, to which the United States is a signatory, as it forces FFIs to discriminate against Americans on the basis of their citizenship.
The rapid rise in renunciations of U.S. citizenship over the last four years is directly linked to FATCA. U.S. policy has indeed gone astray when it forces its own citizens to renounce their U.S. nationality, particularly at a time when the U.S. needs to reinforce its competitive position in the global economy.
To eliminate FATCA’s serious collateral damage on Americans abroad, the United States must adopt residence-based taxation, which would de facto eliminate applicability of FATCA to Americans residing overseas. American Citizens Abroad has submitted to the International Tax Reform Working Group of the Ways and Means Committee a detailed proposal for transition to residence-based-taxation for individuals.
FATCA creates serious damage to the United States and its economy
Foreign governments worldwide are furious that the U.S. Congress has the arrogance to exercise financial imperialism, to unilaterally impose its laws on the rest of the world, to require foreign financial institutions to spend tens of billions of dollars to comply with U.S. law and to require FFIs to break privacy laws in their own country in order to comply with FATCA, exclusively for the benefit of the United States, with no reciprocity, let alone any prior negotiation. Since FATCA has proved unworkable as legislated, the Department of the Treasury has been obliged to negotiate IGAs with foreign governments to circumvent the privacy issue and to introduce a limited form of reciprocity, but resentment abroad remains great. There will be a backlash and immediate consequences. The reciprocity agreements in the IGAs create a major burden for U.S. financial institutions now required to filter out by nationality all accounts owned by foreign residents and to report on those accounts to the respective governments.
An immediate impact of FATCA is a serious reconsideration by foreigners of the risks and dangers of investing in the United States. Foreign insurance companies have already pulled back. Private bankers are advising their foreign clients to reduce U.S. investments, if not totally divest. Foreign investment groups that had been providing fresh capital to small and medium-sized U.S corporations have stopped this activity. Latin American money is retreating from U.S. banks. The threat of FATCA confiscatory 30% withholding tax not only on all U.S. source fixed or determinable annual or periodical gains, profits, and income (FDAP income) but also on the sale value of U.S. assets creates great uncertainty and reserve among foreign investors.
FATCA creates a new barrier to U.S. exports. The President’s Export Commission has recognized that the major export potential of the country comes from small and medium-sized U.S. companies. How will they be able to initiate export activities overseas if they cannot even open a bank account abroad?
Finally, FATCA creates systemic risks for the entire international financial community, through potential processing errors, chain effect, misinformation, etc. One measure of the law – the pass thru deemed essential by Congress for an air-tight system – has been defined as unworkable by the British Bankers’ Association and even by one of the authors of FATCA legislation, J. Richard Harvey, of Villanova University.
FATCA is bad law on all fronts and should be repealed.
Thank you for your consideration.
Marylouise Serrato, Executive Director, American Citizens Abroad
Em, just commented (as outragedcanadian) – don’t know if DF has renounced her US citizenship or is playing off dual-citizenship and is or isn’t compliant with taxes to the US, but reminded her that the US is wanting to see her FBARS and returns or she’s classified as a “stinkin’ tax cheat”. 😛
Apparently DF knows all about her tax filing responsibilities:
It can be argued that it is not meaningful whether FATCA is approved or not by different countries.
This is because IRS already has the means to obtain the needed information, possibly even including the identities of the senders of all emails in this forum.
“The Internal Revenue Service is collecting a lot more than taxes this year–it’s also acquiring a huge volume of personal information on taxpayers’ digital activities, from eBay auctions to Facebook posts and, for the first time ever, credit card and e-payment transaction records, as it expands its search for tax cheats to places it’s never gone before.”
“…taxpayers should know that whatever people do and say electronically can and will be used against them in IRS enforcement.”
“The agency declined to comment on how it will use its new technology. But agency officials have been outlining plans at industry conferences, working with IBM, EMC and other private-sector specialists. In presentations, officials have said they may use the big data for:
— Charting and analyzing social media such as Facebook
— Targeting audits by matching tax filings to social media or electronic payments
— Tracking individual Internet addresses and emailing patterns
— Sorting data in 32,000 categories of metadata and 1 million unique “attributes”
— Machine learning across “neural” networks
— Statistical and agent-based modeling
— Relationship analysis based on Social Security numbers and other personal identifiers”
I like especially:
“Private industry would be envious if they knew what our models are,” boasted Dean Silverman, the agency’s high-tech top gun who heads a group recruited from the private sector to update the IRS…”
…and they’ll huff and puff and BLOWWWW your house down.
I already up arrowed you there. 🙂 Duh Francis probably has underlings to take care of incidental little trifles such as her tax compliance whereas we have now just finished 3 out of the 4 tax forms we need to file this year — all DIY because we have no experts where we live and we’re not driving hundreds of miles to find some. The dreaded US 1040 and requisite FBAR are still to come. (We did a final 1040 for my husband’s mother who passed away last year.) Our Canadian taxes were complicated by my husband’s inheritance but proved to be not too bad in the end. Thank goodness I had found out about 1135 in advance. It ain’t easy being lo-di-do instead of la-di-da.
Yup… FATCA is just part of the ‘Big DATA’ collection that is moving us beyond Orwellian.. It is not a future world that I would want to introduce another child into.
Why has it been 16 months since I entered OVDI and I still haven’t heard from you? Is it because you’re too busy scouring the internet for leads you’re getting from Facebook, people bragging about all of their offshore accounts or phoney business write-offs, or do you go directly to the “US Tax-Evaders-R-Us” blog where people are more than eager to brag how they stick it to the IRS?
“We will get back to you after sequestration. In the meantime, thanks for extending the Statute of Limitations for us!”
Your friendly IRS
PS. Stay compliant. We are watching!
Thats ok, IRS, I’m just happy to hear from you. By the way, I left a little note for Chairperson Nunes over there at the International Tax Reform Working Group letting him know how I felt about not hearing from you. We won’t worry about that now. All good?
Finally posted a comment as FBAR Compliant
I’m starting to read Roger Conklin’s submission posted today, it’s long but it’s a page turner!
Thank you Roger.
What an amazing submission – all 17 pages. Thank you again Roger Conklin!
Given our proximity and numbers in the population, (ex. > 1 million in Canada) – dual US citizens are exceedingly likely to live in Canada and Mexico – major trading partners of the US, and to have experienced the horrors of US double and extraterritorial taxation at first hand. They can speak with personal knowledge of the compelling reasons why hiring someone from the US to work in non-US settings would be unprofitable and a drag on a company’s profits.
We who live in Canada and elsewhere are very happy to share what we have learned about US crossborder taxation with anyone who will listen. Increasing numbers of us have chosen not to travel to the US, not to buy from the US, and not to invest in the US. We are happy to keep our money at home, and to influence as many others as possible to do the same.
As FATCA becomes better known, it will become more and more obviously self defeating for duals or greencard holders to maintain any US connection except for that of family.
Can’t see how that could possibly result in selling us US timeshares, US property, Florida and Arizona vacations, or luring us across the border to buy US goods – can you? And our non-US family members aren’t likely to buy that Florida retirement home when we can’t or won’t travel to the US with them.
The ACA campaign, and the submissions by those ‘abroad’ are starting to be noticed – see this article in The Hill: http://thehill.com/business-a-lobbying/293187-americans-living-abroad-plead-for-relief-from-irs
‘US expatriates plead for relief from IRS’
By Kevin Bogardus and Bernie Becker – 04/11/13 05:00 AM ET
“Lawmakers in Congress who are eyeing a rewrite of the tax code are getting an earful from Americans abroad who want relief from double taxation and time-consuming paperwork.
Letters are pouring in to the House Ways and Means Committee from as far away as Australia, Germany and Bahrain from citizens who say the IRS inflicts a particularly cruel form of punishment on them for living abroad.”……………
However, a Republican aide quoted in the article, says they already know of the issues raised, and calls the issues for individuals abroad ‘irrelevant’ – he is obviously concerned only with how US corporations fare; “A House Republican aide said that business issues were the main focus of the international tax reform working group. Lawmakers knew about the issues facing citizens abroad before the letters came in, the aide said:
“We were definitely aware,” the aide said. “This isn’t anything new.”
But the aide added: “Unless we drag in the individual side [of the tax code], it’s kind of irrelevant.”
Blumenauer said the “point of departure” for his working group was corporate tax issues, not the individual code, but said he hopes tax reform “goes beyond that” to “our role in a global economy, how we raise revenues.””
Little do they care of the collateral damage — whatever kind of war!
Thanks for finding that article. Our own Roger Conklin (aka RogelioC) is giving them an earful in the comments. I hope Brockers will get out their “up arrows” to show their appreciation. I’m getting tired of the focus on corporate interests rather than individual interests.
Question: If corporations are considered to be “persons” and corporations are taxed according to a territorial system on their overseas operations, holdings and earnings then why can’t actual people be considered “corporations” and thus become “persons” who are at least afforded the same tax benefits that corporations have arranged for themselves?
@Em, I read Roger’s excellent submission. In his submission, he makes very clear how the individual issues and the business ones were entwined.
Frankly I’m not impressed with the Republican aides dismissal of the problems individuals face. If he and his colleagues indeed already are aware of them, then what have they done about it? Why not a statement showing solidarity? After all, when a US corporation does business ‘abroad’, they need personnel, and the personnel have families to consider. And what about those who study ‘abroad’ and may bring back knowledge and expertise and global experience to benefit the US? Why not make it easier to do?
And the corporations are only ‘people’ as and when it suits them. They couldn’t give a damn about the real people ‘abroad’. And neither can the US Congress, Senate, and White House. They want our ‘foreign’ money, and otherwise, as far as they’re concerned we can just f—off.
We don’t have paid lobbyists, and aren’t buying expensive creamed chicken fundraising dinners, so what happens to us is of no concern.
We aren’t worth committing political suicide over.