Why FaTCa may be repealed - heritagetg.com

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Why FATCA may be repealed

Dr Angelo Venardos of Heritage Trust Group explains that Common Reporting Standards
(CRS), the “son of FATCA”, may get push back if FATCA is repealed in 2017.

The Foreign Account Tax Compliance Every American who lives in London,
Act (FATCA) – a law passed in 2010 to Zurich, Singapore or Hong Kong, for
tackle the abuse of using offshore fi- example, needs to have a bank account
nancial accounts for the purpose of simply because they need to be able to
evading US taxes – is now in effect after write cheques and pay utility bills just
a two-year delay. like anywhere else.

As it requires foreign financial institu- The number of Americans living abroad Angelo Venardos
tions (FFIs) worldwide to identify and is estimated to be 7.6 million worldwide Heritage Trust Group
report to the US all financial accounts – from whom there are about 440,000
owned by US citizens and Green Card IRS tax forms filed for Section 911 gence and building up an infrastructure
holder, many American are facing an Foreign Earned Income Exclusion every for the purpose of identifying those
enormous challenge while living and year. The vast majority of overseas who may be subject to US tax liability.
working abroad amid an expanding Americans who are not filing US taxes
regime of regulations, says Dr Angelo are not trying to evade taxes but in most
Venardos, chief executive officer of cases simply believe they do not need
Heritage Trust Group. to file because they do not owe any-
thing or they know they fall underneath
Guilty unless proven the exemption threshold allowed under
otherwise Section 911.
The basic principle of FATCA is the as-
sumption that every financial account Unintended consequences
held by US Citizens overseas is poten- Banks and financial institutions around
tially used for the purpose of evading the world have been scrambling to put
US taxes. in place their own system of due dili-

1 Compliance

Yet, because the requirements for price that Americans have to pay in foreign government to report to the
FATCA compliance are so cumbersome, terms of their freedom and privacy is IRS. Information collected from financial
there are an increasing number of cases in fact tremendous. institutions within its jurisdiction,
in which Americans are reportedly whereas FFIs report directly to the IRS
denied banking services, particularly To go after a small number of people in under Model 2 without involving a
among those who are seeking to open a way that takes away the freedom of foreign government.
a new account. 7.6 million Americans overseas is over-
reaching. Whether in the US or abroad, Model 1 IGAs can be challenged under
The impact on Americans living and American citizens’ freedom is recog- the Treaty Clause of the US Constitution
working abroad has gone far and nized in the Constitution. because they have not been submitted
beyond. Whether you are a teacher to the US Senate for its advice and
working in China or a senior business This is ultimately a bipartisan issue – consent. These are essentially treaties
executive running a multinational whether one is a Democrat or Repub- with foreign governments.
company in Asia, you are affected as lican, one has the same concerns. It
long as you are American. goes back to the question whether it is Before the US sign a treaty, America
worth the freedom of every single needs to have it ratified by two-thirds
There are many affected people more American overseas. of the Senate. Because this has not been
than willing to fulfill their US tax obliga- properly done, Model 1 IGAs can be
tions but are very concerned about The answer from the US Constitution rendered unconstitutional.
getting something wrong in a tax filing. is clearly no.
Secondly, excessive reporting of per-
“There are an increasing number of cases in which sonal information violates the Fourth
Americans are reportedly denied banking services.” Amendment to the US Constitution, by
which “the right of the people to be
secure in their persons, houses, papers,
and effects, against unreasonable
searches and seizures” is guaranteed.

Constitutionality Legal grounds for a When FFIs are required by law to report
Critics of FATCA have often cited the challenge every detail of financial information of
new law to be an infringement of With chapters in 40 different countries, every US citizen abroad to the IRS un-
freedom and the right to privacy of Republicans Overseas has been garner- conditionally, it is in reality seizure
overseas Americans. ing support from US officials and without probable cause or warrant.
elected representatives to address the
The fact that overseas Americans need issues of FATCA deemed insensibly Thirdly, FATCA can be deemed a viola-
to report all of their financial informa- onerous. Republicans Overseas are tion of the Eighth Amendment due to
tion of any asset or bank account to the about to launch a challenge to the con- “cruel and unusual punishment” in the
IRS is staggering. stitutionality of FATCA in a US court of form of excessive fines and penalties.
law on three major legal grounds. The 30% withholding tax (to be imposed
Conversely, in the US, the IRS must have on FFIs for non-compliance) is not a tax
reasonable cause and obtain a sub- The Intergovernmental Agreements but instead a penalty designed to
poena to be able to retrieve bank (IGAs) are bilateral agreements signed compel financial institutions to comply
account information. between the US and partner countries with FATCA and is grossly dispropor-
and are designed to facilitate compli- tionate to the offence of not complying
The increase in tax revenue expected ance for FATCA. There are two types with FATCA’s mandates.
from FATCA is relatively small, but, the of such agreement: Model 1 requires a
Similarly, fines and penalties also apply
to the individual American.

2 Compliance

If one has a bank account with co-sponsors yet and was referred to the FATCA statistics
US$100,000 and it has been declared Senate Committee on Foreign Relations
it for four years, one can be fined up to for initial review. 80,000+ the number of financial
US$50,000 for every one of those four institutions that have registered
years and could theoretically end up Whether the bill advances or not, it with the US government
getting a US$200,000 fine. gives Senator Paul a forum to raise some
of his favorite issues - tax fairness, 80+ the number of countries
Even if it is an account that has no inter- privacy and government overreach - as the US has reached final of
est payments or income tax obligation, he gears up his 2016 presidential bid. provisional agreement with
one is still liable for the fine. for streamlined information
The lawsuit is actually complementary exchange, including the Cayman
A two-pronged approach to legislative efforts of Republicans Islands and beginning discussions
The legal challenge is part of a two- Overseas because it makes it easier to with China
pronged “attack” on FATCA. On the legal gather support once people start seeing
side, Republicans Overseas will file a the process and understanding more 45,000 the number of US
lawsuit to challenge the constitutional- about the issues. taxpayers who revealed offshore
ity of FATCA; on the legislative side, it bank accounts through the IRS
will try to “repeal” FATCA through a bill FATCA as a bipartisan issue offshore voluntary disclosure
that is likely to be part of an overall tax These are obviously fundamental rights programs (OVDP) since 2009
reform package. that are very important to every Amer-
ican. Through the lawsuit the Republi- 30 the number of banking
Rand Paul, the Kentucky senator and cans Overseas are trying to serve a professionals charged by the
2016 Republican presidential hopeful, purpose in addressing issues that are Department of Justice in offshore
is leading the effort to repeal FATCA. not as well understood in US domestic tax evasion matters from 2008 to
Senator Paul formally introduced legis- politics but could affect the lives of mil- April 2003

“There are an increasing number of cases in which 60 the number of US taxpayers
Americans are reportedly denied banking services.” charged by the Department of
Justice in offshore tax evasion
matters from 2008 to April 2013

2,999 the number of US citizens
who renounced their citizenship
in 2013, the highest number on
record

lation in March in the Senate to reverse lions of overseas Americans as well as OUTLOOK
the main requirements of FATCA, saying some domestic Americans. Should FATCA be repealed, and the US
the law has wrongly deprived American takes it cards off the table, this leaves
ex-patriots of access to banking ser- In 2014, 3415 renounced their Ameri- only the UK and EU to play with the
vices, violated their privacy and forced can citizenship, up from the 231 who “Son of FATCA”. Common Reporting
many to renounce their citizenship. did so in 2008! Standards (CRS) which are bilateral, not
unilateral, and residency based, not
The Senator first introduced legislation There are after all some 7.6 million citizenship driven, will most likely get
in 2013 to reverse the impact of FATCA, Americans living overseas in countries push back.
but it went nowhere in a Democratic- all over the world.
controlled Senate. With Republicans So the horse may have bolted, but the
now in charge, he hopes to move the Collectively, it’s the 13th largest “state” pendulum may swing back to a healthy
bill to the floor for a vote. It has no in the union based on population. level playing field.

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