Contributing to a growing wave of understanding about Treasury’s lack of legal authority for its concoction of Intergovernmental Agreements, Mr. Garst examines the likely trigger for FATCA’s self-destruct mechanism: its increasingly evident failure and likely permanent inability to provide promised reciprocity to its so-called IGA partners:
Since its passage in 2010, financial institutions and their governments have scrambled to comply with the costly impositions of the Foreign Account Tax Compliance Act (FATCA). To entice foreign governments to assist in administration of the law and bypass certain legal obstacles, the U.S. Treasury Department has promised reciprocal information sharing. Now, however, they are admitting to having promised more than they can deliver.
The U.S. government’s assertion of authority over the global financial sector has redirected tens of billions of dollars away from productive pursuits and towards compliance efforts. So complex are the demands imposed by FATCA that the law, as originally passed, was almost assured to fail. There was simply little chance that thousands of individual financial institutions would be able to both comply with FATCA’s demands and continue to operate within the legal requirements of their host nations, particularly when it comes to protection of privacy rights.
To circumvent the issue of conflicting local laws, the U.S. Treasury Department conjured for itself powers and responsibilities not part of the actual legislation. Namely, they developed intergovernmental agreements (IGAs) to allow foreign governments to first collect information on American taxpayers before sending it to the IRS. Because institutions are sharing the information with their own governments rather than directly with U.S. authorities, and those governments are updating their laws accordingly, the IGAs allow for compliance with local privacy laws as well as FATCA.
As would be imagined, not every government has been thrilled by the prospect of upending their laws to placate U.S. fiscal imperialism. To entice skeptical foreign governments to sign the IGAs – without which the law would fail – Treasury promised to share similar information on any of their citizens investing in U.S. markets. Now, however, it’s becoming increasingly clear such reciprocation may never occur, throwing FATCA’s viability back into question.
Incidentally, author Garst’s motto is: