FATCA ‘failure’ will cost the US
The US Foreign Account Tax Compliance Act (FATCA) will fail to raise significant extra revenue from US taxpayers abroad and will probably result in a net loss for US authorities, says a prominent opponent of the contentious laws.
James Jatras (pictured), principal of Squire Sanders Public Advocacy, a Washington-based government relations firm, opposes FATCA for a number of reasons, and says it is not too late to defeat it.
The laws, enacted in 2010, require foreign financial institutions to collect and send data on American-owned assets to US tax agency Internal Revenue Service (IRS). Any institution that failed to meet its duty would be hit by a 30% income withholding tax on US-derived income.
It would be possible to have ‘partnership agreements’ with the US. These would allow institutions to give relevant data to their government, which would send it on to IRS. In return, ‘partner countries’ would receive data from US institutions such as banks, investment funds, pensions, and insurance companies, on their own taxpayers.
The case for opposition
Here, Jatras warns about foreigners pulling money out of US investments to avoid it falling under FATCA reciprocal information sharing, and foreign institutions doing the same thing, to avoid the risk of 30% withholding tax.
While the advantages to indebted Western countries, and their sometimes poorly-equipped tax agencies, of getting more knowledge about what their taxpayers are doing overseas is clear, Jatras says better tax collection is not the main reason for FATCA.
Rather, he says, FATCA is at its heart a project about collecting information about taxpayers abroad, and a grandstanding political campaign targeting ‘fat cats’. “In the OECD, there are people who would like a financial fishbowl where all governments have access to your information for their own purposes.”
He adds: “We are talking about hundreds of millions of dollars of tax compliance costs being imposed on industry.” Jatras says there is no reason to believe the rules will raise any more than the $1bn per year, the Congressional Joint Tax Committee has estimated. He adds US institutions would presumably deduct compliance costs from their tax liability. Once those costs exceed $3bn, the deducted compliance/expense would effectively cancel out any increase in tax collected by FACTA locally.
“The real liability of FATCA, legislatively or politically, is not what it costs you as US expats or foreign institutions, it is what it costs domestic US institutions to collect information for the foreign ‘partners’.” Some estimates have projected compliance costs of $7.5bn just for the top 30 banks. A recent study by operational risk consultant Protiviti found banks were spending up to 25% of compliance budgets on other jurisdictions’ laws and regulations.