Last month, I commented that the implementation of FATCA, America’s new and toxic tax act which will negatively impact the seven million American expats around the world as well as the global economy, appeared to be “losing momentum.”
This week, I’m pleased to say, there is further evidence that this highly polemic piece of legislation is faltering before it is due to come into effect on 1st January 2014.
It’s come to light that the Obama administration might soon ask Congress for the power to demand that American banks provide information on their foreign clients’ financial activities to the home governments of those clients.
This will, of course, be extremely complex and costly for US banks – and the costs are likely to be passed on to their customers – and the proposal will, consequently, be met with fierce resistance from the financial industry and Congress.
So why is Obama set to pick such a politically dangerous fight?
It is because in order for FATCA to work effectively, the US Treasury has to secure intergovernmental agreements (IGAs) with every country around the world, which would require them to demand that their financial institutions report information about Americans’ accounts to the US Internal Revenue Service in a bid to catch tax evaders.
But some countries, including ‘big hitters’ such as China, France and Germany, are arguing that if they must ask their financial institutions to do this, then America must reciprocate the deal and force its financial institutions to provide details on their citizens who have accounts in the US for the same reason.
FATCA is, according to the Treasury, a “reciprocal agreement with partner countries”, although as an IRS official commented on 25th January, “Domestic banks are not subject to the same reporting requirements as their foreign counterparts.” Perhaps the US Treasury has a different definition of ‘reciprocity’ to everyone else?
Either way, the Obama administration will have a battle on its hands if it intends to seek the right to have all US banks, and other financial institutions, sign up to an expensive and burdensome programme of declaring their foreign clients’ accounts.
And if a growing number of countries insist on real, functioning reciprocity –as some clearly are – and they can’t get it, FATCA will, ultimately, fail.
Nigel Green deVere Group
Blog written on 6th of February