May 7, 2013
Washington, DC
by James Jatras
Treasury Department’s Promises of U.S. FATCA IGA ‘Reciprocity’ Dead
In a major game-changer, Senator Rand Paul (Republican of Kentucky) today introduced a bill (S.887) to repeal mandates of the “Foreign Account Tax Compliance Act” (FATCA) on financial institutions and individual American citizens as a “violation of sovereign nations’ laws and privacy matters.” In a letter to his Senate colleagues, Dr. Paul pulled no punches about the destructive effects of the FATCA law and the unsupportable claims that FATCA is a legitimate tool to combat tax evasion:
“I intend to offer a bill to repeal certain provisions of the Foreign Account Tax Compliance Act, or FATCA (P.L. 111-147). The intent of this law was to prevent tax evasion by increasing access to overseas bank accounts held by U.S. citizens. However, any law enforcement benefits have been vastly outweighed by the deleterious effects of FATCA on economic growth and the financial privacy of Americans.
“FATCA requires the financial institutions of foreign countries to register directly with the IRS, and to provide financial information on the accounts of U.S. citizens – regardless of whether or not these U.S. citizens are suspected of tax evasion. A failure to comply with these requirements subjects that foreign financial institution (FFI) to a 30% withholding of U.S.-derived revenues. This has had the practical effect of forcing FFIs to relinquish any association with American customers, and to avoid direct investment in the United States. It goes without saying that overseas investment in the U.S. is an important engine of our economic growth and prosperity. FATCA endangers an estimated $25 trillion in foreign capital currently invested in the U.S.
“Perhaps even more troubling, the implementation of FATCA has allowed the Treasury Department to make independent decisions with respect to the sovereignty of foreign nations and the privacy of United States citizens. In order to implement this law, Treasury has initiated intergovernmental agreements (IGAs), citing the intent to engage in reciprocal information sharing with other nations. The Treasury Department, without the consent and authority of Congress, will force U.S. financial institutions to provide the bank account information of private customers to foreign nations. Such a requirement not only diminishes U.S. privacy protections, but also imposes billions of dollars in compliance costs here at home, which will be passed onto customers and the American public.
“My bill is drafted with the intention of removing only FATCA provisions that undermine Americans’ constitutional privacy protections and add burdensome regulations with a negative economic impact on the United States. Other provisions enacted at the same time, such as those pertaining to clarification of foreign trusts and treatment of dividends that do not have those negative impacts, have been left alone. The intent of this bill is not to disrupt legitimate tax enforcement, only to repeal counterproductive and constitutionally suspect mandates.”
Senator Paul’s bold and principled action comes on the heels of a federal lawsuit against the U.S. Treasury Department and the Internal Revenue Service by the Texas Bankers Association and Florida Bankers Association. In that suit, the bankers assert they will lose billions of dollars in business over improperly imposed regulations to report on foreign residents’ deposits to foreign governments. Such reporting, a key feature in the so-called “reciprocal” version of FATCA “intergovernmental agreements” (IGAs) non-U.S. governments are being pressured to sign, is just the camel’s nose under the tent of far more invasive and expensive reporting, for which the Treasury Department recently requested additional authority from Congress.
It is anticipated that a companion version of Senator Paul’s bill will be introduced shortly in the House of Representatives. In addition, measures to block the Treasury Department from carrying out the IGAs, which have not been authorized by Congress, are expected.
With the wind in Washington blowing against FATCA, foreign governments are on notice that Treasury’s promises of “reciprocity” are plain rubbish. Congress will not provide the needed authority to rescue this fatally flawed law. Instead of getting aboard the sinking FATCA ship, foreign governments should reject the constitutionally deficient IGAs Treasury has offered them, tell the U.S. they will not comply with FATCA or allow their domestic firms to comply with it, and signal their willingness to fight any illegal sanctions Treasury attempts to impose.
Activists in Washington are weighing in in support of Senator Paul:
“Senator Paul’s bold stand against FATCA has come at an opportune time. The world is fed up with U.S. fiscal imperialism, and the economy can ill afford another pointless and self-inflicted wound, as FATCA is the worst economic idea to come out of Congress since Smoot-Hawley. Rather than allow regulators to continue pursuing an unconstitutional ‘intergovernmental agreement’ strategy, it is time for lawmakers to accept defeat and abolish this fatally flawed law. Now would also be a good time for any foreign governments thinking about getting in bed with the US Treasury Department to think again. Their promises for reciprocation are simply worthless.” – Andrew Quinlan, Center for Freedom and Prosperity.
“The U.S. federal income tax system already imposes 6.7 billion hours of paperwork on individuals and businesses; FATCA would not only worsen this burden here at home, it would also impose onerous new liabilities abroad. The last thing America should be exporting is its complex tax laws. Senator Paul deserves a round of applause from taxpayers in our nation and around the world for recognizing the dangers FATCA poses to our economy and our civil liberties.” – Pete Sepp, National Taxpayers Union.
It is increasingly clear to everyone that FATCA has almost nothing to do with curbing actual “tax evasion” and everything to do with massive unintended consequences that will lose money for the federal treasury.
Finally, both American and non-U.S. firms that stand to lose millions of dollars each complying with FATCA need to help push the repeal bill through. FATCA repeal needs to be part of any tax reform deal between Congress and the Obama Administration.
You can help – contact us at RepealFATCA.com and find out how!
Vote your Support for S. 887 and email to your legislators all at the same time at PopVox
James George Jatras
+1.202.375.1007
@ bubblebustin
Was that headline predictable or what… LOL
Senator Paul offers bill to weaken U.S. anti-tax evasion law
I am only disappointed that it didn’t mention tax cheats too..
Well, it will be dueling headlines now between advocacy groups!
@bubblebustin…
I was just saying to a friend tonight, What this does, and from my perspective, is the best you can hope for. It raises the issue out of the foggy bottom of Treasury technocrats making agreements and binding their governments without any visibility to the public at large or any Congressional review as is currently happening with FATCA IGAs.
This will (hopefully) stimulate vocal public debate, and Rand Paul will be vilified by the likes of Rachel Maddow as being for “Offshore Tax Cheats” without much understanding of the bigger economic issues. However, you can not have the argument about what FATCA is doing around the globe without it being on the radar of the U.S. media. This helps it get there. Maybe! 🙂
Then you take your lumps in the public sphere which is preferable to letting the FATCAnatics, the left wing version of the NeoCons, continue their un-debated imperial pre-emptive subterfuge mission around the globe with all its unintended consequences and collateral damage.
Bill Nelson, for one, will be forced by his home lobby to vote for this. Likely there are 5 more Democratic Senators in a similar situation.
oops—it is a repeal. It needs 2/3rds. That will take some pushing.
@FromtheWilderness.
Thanks for the link to the comment box for Rand Paul. I sent him a message of support, from a NON Republican, so he should like that. See this is bi-partisan, although I am an independent! 🙂
@Chris, I doubt it. How can an agreement still be valid when the law it was based on is no longer on the statute books? Certainly if Congress gets it’s back up at having it’s executive powers ignored by the Treasury, they won’t be worth anything as Congress would insist on new negotiations I would guess via the proper channels. Whether they’d need a new statute in place before negotiations could begin I don’t know; it might be that there are enough existing laws already that they could work with.
IGA’s aren’t going to go away; too many governments are strapped for cash to abandon the idea. The UK/Swiss one is already in place and effective as of the start of this year; others will follow. Actually I think it’s going to be quite funny because, having opened up the can of worms, the US – whether it likes it or not – is going to end up having to provide reciprocal info to other countries. The rest of the world isn’t going to let the US off the hook now that the IGA ball is rolling. They will be pressured to make agreements with other countries and the banks are going to have to cough up to pay for it – just like the rest of the world already has. What’s good for the goose is also good for the gander – equality and all that, you know.
“FATCA endangers an estimated $25 trillion in foreign capital currently invested in the U.S.”
I wouldn’t underestimate the real concern about this. Wait until the first 30% withholding (confiscation) happens to some large foreign investors.
What kind of effect will that have on other present and potential investors?
FATCA was created by a bunch of reckless, sneaky and arrogant bastards who were either too stupid or too arrogant to understand that FATCA creates huge disincentives for foreign capital that has been up to now flowing pretty much freely into the US.
That capital has to go somewhere and it will go where ever it gets treated the best and FATCA makes the US to be NOT one of those places.
My guess is that Rand Paul is not the only one in Washington who understands this. Others are starting to wake up to it as well.
Link to US Reuters story with open comment section:
http://www.reuters.com/article/2013/05/08/us-usa-tax-fatca-idUSBRE94704420130508
@FromTheWilderness
Wait until the first 30% withholding (confiscation) happens to some large foreign investors. What kind of effect will that have on other present and potential investors?
Exactly. Alternatively – a scenario which in my opinion is also quite likely – the 30% will not be withheld for fear of just that effect on other present and potential investors. In which case the threat will be recognized as a bluff and no one will take it seriously. They’re damned if they do, and damned if they don’t.
IMO, FATCA was based on the premise that most, if not all, foreign banks would be falling all over themselves to invest in the US markets.
The dirty little secret is that reciprocity was not envisioned or desired from the beginning. Remember, FATCA was intended to be signed directly with foreign banks, completely bypassing foreign governments.
Now that foreign governments are insisting on being involved and insisting on reciprocity, a big monkey wrench has been thrown into the whole FATCA scheme because the US risks losing a shit load of foreign investment if reciprocity is granted and it risks losing face if it fails to withhold the 30% for non-compliance.
The FATCAnatics have put the US into a real trap. The fireworks are just starting.
@Innocente,
The reuters comments are not favourabe for Rand. Perhaps some Brockers would like to counter attack with supportive comments.
There seems to be a bunch of fun in the news today, but I don’t have any time right now. Commented in two already, but got to go and enjoy the sunshine. Anyways, here’s one of them about FATCA kicking (mostly) children out of banks:
Geschenkkonten fallen FATCA zum Opfer
http://www.20min.ch/finance/news/story/Geschenkkonten-fallen-FATCA-zum-Opfer-15719459
Google translation to English: http://translate.google.com/translate?sl=auto&tl=en&js=n&prev=_t&hl=en&ie=UTF-8&eotf=1&u=http%3A%2F%2Fwww.20min.ch%2Ffinance%2Fnews%2Fstory%2FGeschenkkonten-fallen-FATCA-zum-Opfer-15719459
Don’t get your panties in a bunch too much over this. It’s basically a DOA bill extended only to score points.
@Fred
It’s not DOA. This is a complex strategy, based on laying down a marker (first in the Senate), then moving it in the House, while at the same time scuttling the IGAs and taking other steps to render FATCA unenforceable. There are a lot of moving parts, most of them behind the scenes for now.
@Chris
Re: “@Jim Jatras, do you have a cover letter you wouldn’t mind sharing to ask senators to cosponsor the bill. Thanks in advance.”
There’s no need for a cover. A simple email to BOTH Senators from your state is sufficient. (If you are not currently in the US, the state where you may still be registered to vote. If you aren’t registered, the state you lived in last. If you’re no longer a US citizen, maybe you have a relative who can send in.) The list by state is here: http://www.senate.gov/general/contact_information/senators_cfm.cfm?OrderBy=state&Sort=ASC . (Go to the “Contact” line below each name. In most cases, there’s a form to be filled out, where you can cut and paste your message.)
The important thing is AS MANY MESSAGES as possible. Senate and House offices have an informal scale on which they multiply messages, roughly to the effect than if they hear from 10 people, they assume 1,000 people share the same views. So a handful of messages taking the same position are read as representative of many more people’s views.
Draft message follows, feel free to modify as suits your circumstances and personal expression. Adding somewhere that “I am from [Hometown, State]” is also a good idea if relevant.
Dear Senator [Name]:
I am writing to request your cosponsorship of S. 887 (“A bill to repeal the violation of sovereign nations’ laws and privacy matters”) introduced on May 7 by Senator Rand Paul, which repeals the so-called Foreign Account Tax Compliance Act (FATCA). As Senator Paul described in his Dear Colleague ( http://www.repealfatca.com/downloads/Dear_Colleague_FATCA_Repeal.pdf ), FATCA, if enforced, would not recover lost tax revenues but it would hurt the American economy and American jobs. In addition, it would have a devastating impact on Americans living and working abroad, an essential element of American competitiveness in the global market. [Add and personal details relevant to your situation.]
Thank you for your kind attention. I thank you in advance for your support for this crucial piece of legislation.
[Name, address, email, etc.]
@not amused
‘They’re damned if they do, and damned if they don’t.’ …and damn those who ever created something so evil AND stupid. They should be run out on a rail, but will instead retire with pension and slobbering gratitude for service, no doubt.
@Just Me and bubblebustin,
Yes, Just Me, a very predictable headline.
As stated in the Reuters piece,
and his letter to colleagues:
It is not all black and white, as many will read it. We all need to know exactly what is proposed to be taken out and what exactly he proposes to remain in FATCA.
I would like more information on the meaning of his “clarification of foreign trusts and treatments of dividends that do not have negative impacts” — negative impacts to the US, not necessarily meaning negative impacts to US Persons abroad. In Canada, those foreign trusts include registered accounts: Tax Free Savings Account (TFSA), Registered Education Savings Plan (RESP), Registered Disability Savings Plan (RDSP) — and of course the Registered Retirement Savings Plan (RRSP) and Registered Retirement Income Fund (RRIF) if IRS Form 8891 (U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans) is not correctly and timely filed each year.
@Jim,
Thank you for posting the letters to congressmen template.
Here is another template from ACA. Hopefully they will be able to mobilize their members like they did for the Ways and Means committee, which was quite impressive to say the least. Got to keep the momentum going.
http://americansabroad.org/issues/fatca/fatca-destroys-lives-and-the-us-economy/
[Your name]
[Your Address]
[Your name]
[Your Address]
The Honorable [full name of Congressman].
United States [House of Representatives] [Senate]
Washington D.C. 20515
[DATE]
RE: Comments regarding FATCA
Dear
I am an American living abroad [or living in the US and doing business abroad]. I would like to make you aware of the unintended and difficult consequences of this law upon my life as a [retiree, business person, or citizen living abroad]. [State the consequences of your personal situation: some of them may include: difficulty in understanding the requirements of the law, expense in compliance, problem with being refused banking services or interference with business relationships.]
I understand that ACA American Citizens Abroad ( americansabroad.org ) is making a large effort to educate the US Congress about how this Act was slipped into the Hiring Incentives Bill of 2010 and was not properly reviewed; most in Congress were not even aware of the content of the law, let alone the implications. FATCA will significantly discourage foreign investment in the United States due to the threat of withholding 30% of their funds. FATCA will negatively impact U.S. businesses and American entrepreneurs operating in global markets; it has already turned American citizens into pariahs in the international world of finance as foreign financial institutions close off banking relationships. FATCA is not necessary and requires heavy administrative costs that exceed any potential for additional tax revenue; the IRS already has many other tools to go after tax evaders. FATCA is an unacceptable manifestation of U.S. financial imperialism that imposes U.S. law on the rest of the world; this can lead to a systematic destabilizing of international financial markets.
I completely support the current campaign of American Citizens Abroad to have this law repealed.
Please also be advised that I am one of the estimated 6,000,000 or so citizens who live abroad and continue to exercise my voting rights. I am a voter in the US elections and vote in the [__th] district.
Thank you for your kind attention.
Very truly yours,
[Name, Address]
@Calgary
Good points, perhaps someone can write to Rand Paul and ask him directly.
Jim, would those of us who have renounced have any right to give our support? I personally think that anyone who claimed relinquishment, for their own protection of that relinquishment, should not.
I will. I previously sent a comment to Mr. Paul. I identified myself as someone who had renounced US citizenship. As other have, I have NOT received any acknowledgement of my message to him.
@Calgary411
“You have to pass it in order to know what’s in it” 😉 Great points.
@bubblebustin,
Right, I forgot that US congressional legislation rule. (I’m sure that technicality must be in the Constitution somewhere!)
To be honest, I have to wonder if this bill has really got enough legs to become law.
My comment at Reuters aimed at those most likely to have the shortest attention span:
“For those of you who don’t like Rand’s stand on social issues, I have this to say: dig deeper on the FATCA issue. Even a broken clock is right twice a day.”