FATCA issues expressed by top U.S. tax officials

09 Oct

Further doubts surrounding the Foreign Account Tax Compliance Act (FATCA) have been expressed by Nina Olson, National Taxpayer Advocate, and IRS Commissioner, Steven Miller during a meeting of the Securities Industry and Financial Markets Association this week.

With the purported aim of targeting offshore tax evaders, FATCA requires all financial institutions in the world to report all their American clients’ financial activities directly to America’s Internal Revenue Service (IRS) – or be issued with harsh fines.

In order to avoid the wrath of FATCA, thousands of American expatriates renounced their citizenship before the law came into effect on 1st July this year, something they were, naturally, loathed to do.

During the meeting earlier this week, Ms. Olson questioned FATCA’s penalty system, taking into consideration the $10,000 fine for not disclosing a foreign bank account, and the $50,000 fine for failing to come forward after notification from the IRS.  Ms Olson comments: “What its (FATCA) consequences are, intended or otherwise, I don’t think we’ll know that for years. And by that point we’ll actually be a little too late to go, ‘Oops, my bad, we shouldn’t have done this,’ and then try to unwind it.”

As I have said on many occasions, to my mind, FATCA’s flaws far outweigh any possible benefits.  Rather than effectively seeking out unpaid taxes, this highly-controversial law will only serve to seriously burden the lives and financial affairs of US expats, threaten American jobs, reduce foreign investment into the U.S. and potentially destroy vital international relations, amongst other consequences.

Meanwhile, IRS Commissioner, Steven Miller, said at the meeting: “It’s not clear to me that when you look solely at the burden placed on financial institutions and others, versus the amount of revenue that may come into the treasury, that this is going to be a revenue-positive event for the United States.”

This is something I have highlighted since the FATCA concept was first mooted.

The colossal costs to become FATCA compliant places an immense strain on the financial services sector.  President of the Securities Industry and Financial Markets Association, Ken Bentsen said this week: “It is important that Congress and the Executive branch understand that the way in which they develop such policy through legislation and regulation can and does result in a significant burden on the financial services sector, who in effect is required to step into the shoes of the government as it relates to reporting, collection and enforcement.”

Mr Bentsen went on to say: “Let’s not forget that FATCA also impacts millions of individuals and entities outside the financial services sector. It would not surprise me if the total cost of FATCA will be in the tens of billions – a number that comes close to eclipsing the IRS’s USD11bn annual budget.”

In my view, what we’re now seeing three months since it was implemented is not just FATCA’s teething problems, but its fundamental flaws.

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