FATCA, Americas’ new toxic tax act, is in trouble

11 Jan

The implementation of FATCA, a new and highly controversial piece of US legislation, appears to be losing momentum, I’m delighted to report.

Designed, according to the US Treasury Department, to catch overseas tax cheats, FATCA will require all foreign financial institutions to report the activities of their American clients to the Internal Revenue Service (IRS). The penalty of not complying with FATCA will be 30 per cent withholding of US source income.

However, it has a whole host of serious, adverse, unintended consequences that would negatively impact the seven million American expats around the world, plus harm the fragile US economy.

So why do I feel FATCA is running out of steam?  Well, two reasons.

Firstly, the US Treasury Department has again failed to meet its own end-of-year deadline to publish the FATCA rules, one of the key steps in its implementation.  This is the second time that the Treasury Department has missed such a deadline – the first one came and went in September 2012.

Secondly, to date, only the UK,Denmark,Ireland and Mexico, plus a handful of British Crown Dependencies, have signed FATCA’s required Intergovernmental Agreement (IGA).  The Treasury Department had hoped to finalise IGAs with many others, including Canada,France,Germany,Italy,Japan,Spain, and Switzerland before the end of 2012. It failed on that too.

These two factors clearly demonstrate that the implementation of FATCA is losing momentum.

The optimist in me hopes that the FATCA machine stalling is the first sign that it could ultimately be repealed completely.

FATCA would negatively impact seven million US expats who choose to live overseas, as well as all US firms who operate globally, as a growing number of foreign financial institutions – with which they have to work to function effectively abroad – are rejecting Americans because they would have to become ‘FATCA-compliant’ which would be extremely costly and highly complex.

FATCA, which one expert dubbed ‘the worst law most Americans have never heard of’, would also drastically reduce foreign investment into the US, due to the threat of the IRS withholding 30 per cent of investors’ funds.  Should FATCA come into effect, investors will simply put their money somewhere else, dampening US economic growth and slashing job creation in America.

Not only all that, but FATCA would not even achieve its main aim of actively targeting tax evaders.

No doubt, the Treasury Department will soon announce that other countries have engaged with FATCA IGAs and it will, finally, publish its rules.  But there’s no getting away from the fact that the campaign to introduce FATCA appears to be floundering.


  1. I hope the FATCA Attack from United States of Arrogance to override laws and constitutions of countries around the world is over soon.

    “Toxic” is a polite word to describe Foreign Attack To Control All.

  2. To say that “FATCA would negatively impact seven million US expats who choose to live overseas,” is a bit misleading. Many United States persons are in fact only US citizens through descent (through one or more parent) and a great many of them have never stepped foot on US soil. For the US to pursue these people though FATCA, and to be effective FATCA must, is one of the most egregious aspects of this terrible law. It should die a writhing death and those individuals who brought it upon the world should be held to account for this act of hostility against every nation of the world.

  3. Thank you Mr. Green for your analysis. In the words of Washington Lobbyist James Jatras, FATCA is “the worst law that nobody has ever heard of”. FATCA is an egregious overreach by the US government. The US is the only country in the world that taxes its citizens regardless of where they live and work. FATCA forces governments to break their own countries privacy laws and charter rights to comply with IRS tax law. Innocent “US Persons” living abroad, many who have never lived or worked in the US, will be caught up in this mess and forced to spend thousands in legal/accounting fees to correct. US persons impacted by this law should write their local legislators and tell them to SAY NO to FATCA. Write to your US representatives and let them know why FATCA should be repealed.

  4. Gosh I hope that is correct. I don’t want to experience the “Karl Rove election night shock” as a pundit that was absolutely certain that Romney had won! We need more media attention and some serious lobbying effort to be sure that the “FATCA IGA Pig can’t fly”

    The opposition, the FATCAnatics, are a determined lot, with almost religious fervor for their mission. I, in no way underestimate their single minded myopic focus. Combined with the OECD they have a global mission, a GATCA if you wish. FATCA is the ‘tip of the spear’ in their War on Offshore Tax Evasion (WOOTE), consequences be damned. You are right, it will not solve the problem, any more than the War on Drugs, after 50 years, has solved America’s drug consumption.

    What is hard to understand is why the resentment of all the FFIs of the world against FATCA is only being channeled into compliance spending and not other risk avoidance strategies. Shedding Americans from their account lists isn’t enough. That might feel good, in a get even sort of way, but it really doesn’t solve their problem. Treasury is really working hard to make the non participating foreign financial institutions (NPFFI) position in the global economy untenable. However, that only works if there is mass compliance capitulation by FFIs and Governments around the globe.

    All the FFIs hate FATCA. US Banks Hate FATCA. They all know FATCA is totally wrong in the unilateral way it is being conducted, and yet they meekly comply. Why? Because the FATCA Compliance Complex (FCC) with a vested interest in selling compliance products told them they had to? Fear of that 30% withholding? Probably. What is certain is this. Their meek quiescence, is assuring they get what they hate. They make it so.

    I am puzzled. I thought what the financial “masters of the Universe” did, was make hedging decisions to diversify risk. Yet with FATCA, because of ‘group think’ they all believe in the FCC marketing message, YOU MUST COMPLY. Or maybe because of fear of reputational risk of being ‘broad-brushed’ as in favor of tax evasion, they collectively are putting all their eggs into FATCA Compliance basket.

    Why are they not diversifying even a small portion of the total spend into a lobbying effort? In America, lobbying, as much as we complain about it, has a good track record of a better return on investment, (ROI) then the way FFIs are pouring money down a one way rat hole.

    I wished someone could explain that to me, as I truly do not get it.

    If this was a new hot CDO they would should certainly be buying a CDS against total loss, or at lest they should have learned that lesson from the financial crisis. They should have a similar effort against FATCA Cost and Exposure. Maybe AIG is selling that derivative now, and I don’t know what it is. 🙂

    If I was a board member of a FFI that was willing pouring money into the FATCA compliance bottomless pit without ANY effort at lobbying to get the damn thing repealed, I would have some hard questions for the management. Just writing a letters to Treasury beseeching them for relief around the edges in a comment period is NOT enough! Rather, waste of time, comes to mind.

    So, IMHO, if I were the CEO, I would be asking my compliance team, what portion of the total spend is directed to a DC centered lobbying effort and what portion is going into due diligence to comply if absolutely forced to. If they have to pay those 30 silver coins equivalent of 30% withholding to dob in U.S. Persons residing around the globe, then at least spend 1 coin on an opposite bet. Even if it was just 3% of the billions the industry is going to waste, for no return, they could have considerable clout for very meager exposure. In the meantime I would drag my feet with as little spending on compliance as possible, as delay is a good strategy too.

    However, it appears that right now, they are all lined up on the same side of the bet. Doesn’t that give anyone pause to consider what is happening? Is this the same group that pre 2007 ALL thought CDOs were a sure bet, and forgot to cover their exposure with a CDS? Read the ‘BIG Short’, and don’t go 100% long on FATCA yet!

  5. Nigel,

    What rules are you speaking of when you say:
    “Firstly, the US Treasury Department has again failed to meet its own end-of-year deadline to publish the FATCA rules, one of the key steps in its implementation. ”

    Aren’t the rules for each FATCA treaty with the pertinent country explicitly stated in the treaty?

    Can you elaborate?

  6. Wishful thinking. FATCA is here to stay, and like every initiative created by the World Bank, EU and others, we will just have to learn to deal with it. It is time that tax dodgers pay their fair share at home and abroad.

  7. I’m an American working for a US firm but deployed overseas. I currently qualify for the foreign earned income exemption which means that for Tax Year 2013/2014 I do not have to pay US Federal Tax on the first $95,100 of my income. I am still paid in US dollars from the US firm and am eligible for a refund on any taxes paid if I can somehow get my Adjusted Gross Income (AGI) below that $95,100 threshold. Thus far my response has been to max out my 401k contributions (it comes out pre-tax and reduces AGI).

    However I may leave my US firm and join an organization in Qatar where there is no income tax. I am not a tax evader, but there has to be some way to protect my income above $95,100. I have researched other nations, most recently Isle of Man, for an FFI with banking privacy laws that do not show source or deposit of funds. In this way I believe that I could simply report the amount of the foreign held asset on the FBAR and IRS Form 8938 in order to be compliant without paying an enormous percentage of that income to Uncle Sam.

    If anyone has options, can make recommendations, etc. so that I am not steamrolled by FATCA, then I am all ears. Thanks in advance.

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