FATCA, Americas’ new toxic tax act, is in trouble
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The optimist in me hopes that the FATCA machine stalling is the first sign that it could ultimately be repealed completely.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.