As we have been saying for a long time, ‘DATCA lite’ (FATCA IGA reciprocity) has the potential to be financially destabilizing. It, along with GATCA, was birthed from FATCA. DATCA and GATCA are the direct progeny of the 2010 Hire Act. Given the stealth nature of the FATCA amendment, is very hard to make a case that this was the intention of Congress, but it is now the ‘Rosemary’s Baby‘ reality that we are dealing with.
See this new article by Alex Newman.
Obama Tax Scheme Could Destabilize Banks, Spark Economic Crisis
A crucial component of the widely criticized new addition to the U.S. tax regime known as FATCA, passed by Democrats and signed by Obama in 2010 as part of a “jobs” bill, could result in massive capital flight from American banks and economic devastation if efforts to stop it are unsuccessful, experts and policymakers are warning. With the U.S. economy still teetering, some analysts are even suggesting that allegedly unlawful IRS mandates purporting to force American financial institutions to report foreign account holders to their governments could be the straw that breaks the proverbial camel’s back.
For a complete history of DATCA evolution and its opposition in Congress, read more here.
Of important note, is this addition I just made. It is the analysis from 2004 which merits your attention.
Mercatus Center at George Mason University
AN ECONOMIC ANALYSIS OF THE PROPOSED IRS RULE GOVERNING THE REPORTING OF DEPOSIT INTEREST PAID TO NONRESIDENT ALIENS
Treasury had tried before FATCA IGAs (going back to 2002) to impose a DATCA regime, but didn’t happen until it had an Administration in power to its liking. I didn’t realize this history, until this pdf analysis was sent to me recently. It just goes to show, that bad ideas have a long gestation period, and vigilance against them can NEVER be relaxed.
UBS offshore Tax evasion scandal and the birth of FATCA obviously (at least to me) were the “Shock Doctrine” moments that gave the Treasury its opportunity again, to impose DATCA lite unilaterally by their interpretation of ‘regulatory authority’ without regard to the will of Congress.
One of the criticisms lodged against using Federal Register page counts as a proxy for regulatory burden holds that many pages can be consumed in the process of deregulation, while only a handful of pages may be required to impose a particularly costly rule. The latter instance is clearly illustrated by the IRS’s proposed rule to require the reporting of deposit interest paid to nonresident alien (NRA) depositors of U.S. depositories. I hold this conclusion despite the IRS’s unsupported assertion in the scant (4 page) documentation of its proposed rule that the “proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866.” (p. 50387).
Although proposed in 2002, and the comment period has long since passed, the NRA deposit interest reporting rule has not been finalized; however, the possibility that it may be implemented provides the motivation for this study. The analysis that follows confines itself to the likely economic consequences of the rule, and leaves the legal and political analysis of the rule to others.2 For ease of exposition, I summarize my analysis of the rule’s potential economic effects into primary effects, secondary effects, and other likely consequences.
I will update my timeline of DATCA to include this as an earlier start date, as my start date only begins at my moment of awareness of what was happening.
Unfortunately if DATCA goes, this may not necessary get rid of FATCA for us. There is an interesting article from risk.com ‘Universal Fatca runs into political obstacles.’ It notes that even if DATCA runs into trouble, FATCA may still stand because the U.S. always intended to use its unique position in the world financial system to impose FATCA unilaterally on other countries.
RE: A crucial component of the widely criticized new addition to the U.S. tax regime known as FATCA,
Finally someone is figuring it out!!! But will anyone listen? Get all your US$ (if you have any) exchanged NOW; the folks in the US have no idea what is going to hit them soon enough!
A frightening companion piece to the above:
Patric Hale has given his permission to reproduce his excellent response to Alex Newman’s article:
This article describing FATCA as a ‘train wreck’ is interesting, considering that the comment comes from someone who is ex-IRS and appears on a pro-compliance website. Article predicts that issue will explode in summer.
That article you reference was highlighted here on IBS…
and here is the final in the series by Alex…
Obama Bypasses Congress to Foist “Imperialist” Tax Plot on World
@Deckard1138. Thanks for posting Patric’s comment. He makes good ones.
I personally can’t wait for the withholding games to begin on July 1st, the day the world finally begins to wake-up to the FATCA monster. Train wreck indeed!
I predict that within days of FATCA’s implementation, there will be sheer chaos across the globe as the 30% withholding stick begins to flail. It will pit compliant FFI’s against non-compliant FFI’s, breeding anger and resentment every which way, but ultimately targeting the abomination’s main culprit – the USA. Fun times ahead! Break out the popcorn!