US Treasury should be called to account on ‘economy-damaging’ FATCA
The U.S government owes it to Americans to explain why it remains committed to implementing the highly controversial and potentially damaging Foreign Account Tax Compliance Act (FATCA) .
Designed primarily, according to the US Treasury department, to catch tax evaders, FATCA will require all foreign financial institutions (FFIs) to report the activities of their American clients to the US Internal Revenue Service (IRS). The penalty of not complying with FATCA’s costly and complex procedure will be 30 per cent withholding’s of US source income.
However, many critics argue that it has “unintended consequences” for the American economy and it will not help substantially in the fight against tax evasion.
I agree and think the US Treasury Department must be called to account. It needs to justify to the American people why it is determined to proceed with FATCA when it threatens to financially negatively impact the US economy.
FATCA was slipped into the 2010 HIRE Act and wasn’t reviewed properly by Congress – indeed most in Congress are unaware of the legislation, let alone its unintended consequences.
FATCA will dramatically reduce foreign investment in the US– at a time when the economy is teetering on a knife edge – due to the threat of the IRS withholding 30 per cent of their funds. Investors will simply take their money overseas. Indeed, David Schwartz, the executive director of the International Bankers’ Association of Florida recently observed that “several hundred million dollars have left Florida for foreign jurisdictions” between April 19th, when FATCA regulations were passed, and the end of July.
The potential revenues that FATCA could generate will be outweighed by huge foreign investment losses.
In addition, FATCA will adversely affect US businesses operating in global markets because they have to have foreign bank accounts to facilitate payments from foreign clients and to pay local charges. However, many foreign financial institutions are rejecting American firms as clients – even if they have worked with them for years – because becoming ‘FATCA compliant’ is too burdensome and far too expensive.
FATCA does very little to actively target tax evaders and it has a potentially devastating effect on the American economy. The U.S government owes it to Americans to give public, in-depth justifications on why it remains committed to this highly controversial piece of legislation.
Nigel Green deVere Group
Blog written November 16th