— U.S. Citizen Abroad (@USCitizenAbroad) August 15, 2013
A new post from Jim Jatras
It seems that “automatic exchange of information” (AEOI) is all the fashion at the European Commission as a means to combat “revenue losses incurred due to tax fraudsters and evaders.” To that end, a recently proposed Council Directive would base an AEOI “pilot action” on model intergovernmental agreements (IGAs) drafted pursuant to a “joint statement” last year by the U.S. Treasury Department and five EU governments for “reciprocal” implementation of the U.S. “Foreign Account Tax Compliance Act” (FATCA).
As an American, I cannot tell Europeans they should not base their tax policy on AEOI or the FATCA model. But if the Commission or EU Member States believe that the U.S. will actually provide “reciprocity” for the kind of information they are committing to deliver to Washington, they should reconsider their assumptions.
Under the FATCA IGAs, European governments commit to require their domestic financial institutions to report the assets of all “U.S. Persons,” first to that government’s own tax service, and then to transfer it to the U.S. Internal Revenue Service (IRS). For example, under a law recently approved by the parliament of the United Kingdom (the first country to sign an IGA), HM Revenue & Customs commits explicitly to impose the American FATCA law on British institutions. The costs of regulatory implementation by HMRC would fall on British taxpayers. In turn, UK financial institutions (and their customers) would bear hundreds of millions of pounds in costs for collecting the information for transfer to the IRS. The direct revenue benefit to the Exchequer? Zero. The same will take place in each non-U.S. “FATCA partner” country, as the 2012 “joint statement” euphemistically calls them. (Worldwide, estimated FATCA compliance costs run to $1 to 2 trillion in order to “recover” revenues of less than $1 billion per year – enough to fund the U.S. federal government for about two hours.)
What is the U.S. obligated to provide in return? Nothing, as it happens. The IGAs, which are nowhere authorized or even mentioned in FATCA, have no clear status in American law. They are not simple treaty-based “interpretive” agreements, nor are they treaty amendments submitted to the U.S. Senate for advice or consent, or to the full Congress for enactment in American domestic law. In essence, this means the IGA has the force of law for the non-U.S. “partner” but not for the U.S. I have first-hand knowledge of at least one government that specifically told Treasury they would consider an IGA only if it took the form of a treaty protocol, with Senate approval, so they could be sure it would bind the U.S. as well. Treasury flatly refused.
You can read the complete article here.