How you will end up paying the price of America’s controversial new tax act

22 Jan
Clients of British and Irish banks could face increased banking costs after the UK and Irish governments have signed a controversial intergovernmental agreement (IGA) with the US to report directly to America’s Internal Revenue Service (IRS). 
The UK and Ireland are amongst the countries which have already accepted an IGA with America in order to be compliant with the Obama administration’s Foreign Account Tax Compliance Act (FATCA).  FATCA will require all foreign financial institutions to declare the activities of all their American clients to the IRS.
The costs of becoming FATCA-compliant for banks, and other financial institutions, in countries where an IGA has been agreed will be astronomical.
In these challenging economic times, when some banks have even had to be rescued from collapse using taxpayers’ money, financial institutions can ill-afford these costs and they will, of course, be passed on to their clients.
Essentially, banks, and in turn their clients, will be paying for the privilege of becoming defacto snooping agents for the US Treasury.”
Last year Shroders, the asset management company, estimated that it will cost $500bn to implement FATCA and a further $10bn annually to operate it.  The cost to the UK’s financial services industry alone is believed to be £400m, and some reports put the cost for some Swiss banking groups at CHF 150m.
The enormous financial burden put on financial institutions and their clients the world over, in an attempt [by the US government] to recover less than $1bn per year in lost taxes, is wholly unacceptable and is one of the many reasons why FATCA must be repealed.
Foreign financial institutions have until 1st January 2014 to meet FATCA’s requirements.


  1. Re FATCA, FATCA as you quite rightly point out will cost all FFIs a considerable amount of money – I know of one asset manager (FTSE 250 Co.), which has budgeted £500k in order to become FATCA compliant. However, where there is adversity there is often also opportuntity – while some corporates are trying to get rid of all “U.S. clients” in order to simplify their costs & compliance with FATCA, there is surely an opportunity for an enlightened advisor to engage with wealthy “U.S. taxpayers” and certainly those who are based outside the U.S. who may have inadvertantly built up (under FATCA), many years of tax liabilities. I am no expert on FATCA, but I believe there are certain, either solutions, or at least deferral type structures that can be applied to the financial affairs of ex-pat U.S. taxpayers, in order to help them defer/mitigate historic tax liabilities on assets that may have grown over previous years.

    1. You must have been watching Zeitgeist on the net and deiecdd things that are too good to be true are really true. There are two words to describe your question and the first one is Bull. I know it will be hard for you, but try to think rationally for a minute: The federal income tax has been around since 1913 and everyone who has tried to argue this nonsense has been shot down. If there was really a problem with it don’t you think it would have surfaced by now or is the entire Supreme Court Deluded? Was this answer helpful?

  2. It will ultimately take the governments of the world to say, no. No to U.S. law being imposed on foreign chartered financial institutions, no to U.S. blackmail, no to Congressional extra-territorial over reach etc., and no to U.S. citizenship based taxation which will not only cost astronomical sums to their financial institutions but is ultimately going to hit those governments with a double whammy by draining their treasuries and imposing costs on those same treasuries where an IGA is in force and they are obligated to fulfill IRS reporting demands.

    1. What the author innlationtley left out was that Exxon paid an average of $27B in annual “GLOBAL” income taxes, of which more than 60% was paid to foreign governments based on US government statistics. That means Exxon paid less than $10B in US income taxes. He also misleads the reader by stating that Exxon pays 41% of it’s income to taxes based on a mindless extrapolation of dividing it’s 2006 income of $67B that’s listed on Yahoo by $27B in taxes. Again, this is not the effective US corporate tax rate for the petroleum industry. Rather it is closer to 15% based on published corporate tax data and my mindless extrapolation of dividing Exxon’s $67B of income by $10B of taxes paid in the US. (Hell, I wish I could only pay 15% income taxes). I’m sure Exxon’s tax rate is even lower now since the 2005 tax breaks gifted to the oil industry. It’s still a lot of $$ in taxes, but Exxon is making a lot of profit which they are barely investing anything back into exploration (4%) and R&D (2%) on alternative energy that would help the US. Rather they are investing it in fat executive bonus’/retirement plans, stock divident/repurchasing and lobbyists.But to add insult, the author compares Exxon’s taxes to the “Bottom” US Taxpayer taxes. To put it into perspective, the average “Bottom” US taxpayer earns $10,000 per yr based on his numbers ($922B income/65M returns). A number so small that it’s easy to comprehend. And of that $10,000 he pays $300 in taxes, leaving him $9,700 per year to live on. This is a far cry from the “billions” in profits that Exxon has earned in the same yr.

  3. One way to help get more attention on repealing FATCA is to focus on the Intergovernment reciprocity agreement (IGA) provisions of IRS bulletin 2012-20. The IRS is asserting that they can impose this FATCA lite provisions on comestic U.S. Banks via their regulatory authority. Can they? No one has challenged it in court, although the Posey Legislation sure tried to stop them, but went no where in the Senate..

    Here is the bulletin link.

    Note that they address the controversy over their regulatory assertions his way… “It has been determined that these regulations are not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13563. ” . Is that actually true? I am not an attorney, so don’t know.

    Here is the Posey Legislation, but Treasury cares not one whit about the Will of Congress.

    It was NEVER the will of Congress to have FATCA blow back onto U.S. Shores in the form of a domestic FATCA for DATCA

    With 2012-20, it definitely is coming, and in the FATCA IGAs, be sure you read carefully Article 6, where they lay out their plans to advocate for and pass legislation to create a full blown version of FATCA in America.

    FATCA is begetting DATCA and it is the Achilles Heel of their FATCA plans. Without the domestic DATCA, FATCA implementation and forcing of US will on the world gets that much more difficult.

    Here is the UK IGA agreement and the language…

    1. Reciprocity. The Government of the United States acknowledges the need to achieve equivalent levels of reciprocal automatic information exchange with the United Kingdom. The Government of the United States is committed to further improve transparency and enhance the exchange relationship with the United Kingdom by pursuing the adoption of regulations and advocating and supporting relevant legislation to achieve such equivalent levels of reciprocal automatic exchange.

  4. How come the banks, instead of encouraging IGAs don’t tell their governments to just say no??
    You would have to just be insane to sign:
    500bn to implement FATCA and a further $10bn annually to operate it for a projected estimated additional revenue to the IRS of… 800 million per year. Where is the logic here???
    Why don’t everyone see that this is an insane waste of resources and money that could be better spend elsewhere?
    When government make decisions like that, no wonder why they are all broke.

    1. Of course there is! How could they colcelt a tax without implementing legislation? For the Federal Income Tax (and a couple of others as well) it’s Title 26 of the US Code. Google it if you want to read it. But it’s pretty dry reading, all 64,000 pages of it. Was this answer helpful?

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