Boris Johnson still refuses to bow down to FATCA
Mayor of London, Boris Johnson, is still refusing to bow down to FATCA (the Foreign Account Tax Compliance Act), America’s controversial tax law, as he is hit with a bill from the Internal Revenue Service (IRS) following the recent sale of his UK home.
Mr Johnson was born in New York, and having never renounced his American citizenship, is now liable to pay tax in the U.S. on the sale of the property.
The London Mayor is not alone in his animosity towards FATCA. Other famous faces have given up their American passports in order, it has been suggested, to mitigate the effects of FATCA. These, it is claimed, include Tina Turner, who has since become a resident of Switzerland; Facebook co-founder, Eduardo Saverin, who has become a tax resident of Singapore as well as Denise Rich, songwriter, top Democratic donor and socialite, who recently moved to London.
Had Mr Saverin kept his American passport he would now be eligible to pay 40 cent income tax, whereas being a tax resident of Singapore means he is only liable to pay half this amount.
The number of American expatriates also giving up their citizenship because of this highly onerous law rose by 220 per cent last year. A poll undertaken by deVere Group showed that 73 per cent of the 7.6 million Americans living abroad are seriously considering relinquishing their U.S. passports.
American superlawyer, Jim Bopp, who launched a hard-hitting campaign to stop the implementation of FATCA, has spoken about the importance of Americans living abroad: “Their work overseas is vital to our economy by promoting the sale of our products around the world.” However in contrast, FATCA is likened to financial imperialism for U.S. expats, who are in effect being punished for living overseas.
In addition, Senator Rand Paul, a Kentucky Republican, last year introduced a proposal to abolish certain aspects of FATCA, as he claimed the IRS was forcing foreign governments to act as tax spies.
FATCA requires every foreign financial institution in the world to report their American clients’ activities to the IRS, with the aim of catching tax evaders who may be in possession of undeclared income in overseas banks.
As a direct result of FATCA, U.S. expats who have assets over $50,000 are therefore being excluded from non-American financial institutions in their adopted country as compliance is too expensive and operose to consider. Expat lobbying group, American Citizens Abroad affirmed in a recent online video that this is one of the most regrettable consequences of FATCA: “Imagine Americans abroad trying to create businesses without credit, a bank account or access to mortgages or loans?”
It comes as no surprise then that Boris Johnson, amongst many others, is understandably riled that the IRS can claim 15 per cent of the capital gains made on the sale of his United Kingdom property, and had he forsaken his U.S. citizenship when he claimed he was going to in 2006, then the sale process would have been relatively cost-effective.
Hence, with the number of American expats wishing to surrender their nationality on the rise, an exit-tax has subsequently been introduced, to make the procedure even more burdensome and costly.
It’s consequently very clear to see why the number of American expats forsaking their citizenship continues to increase.
So what’s next for FATCA?
It has been nearly five months since the law was rolled out, and opponents continue to argue that FATCA has done little, if anything at all to solve the global issue of tax evasion.
I would therefore urge American expats to look at the numerous available options to weaken the effects of FATCA, such as an overseas supplementary pensions contract, by consulting an independent financial adviser with the relevant cross-border experience.
Clearly, in my view, Boris Johnson’s stance against this fatally flawed piece of legislation is to be welcomed and I hope other high profile personalities who have been hit with FATCA’s hammer blow will follow his lead and publicly express their frustrations and annoyance on this highly-polemical law.
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Nigel Green deVere Group Blog