US banking lobby urges Congress to challenge FATCA IGAs
The USA is now the world’s biggest offshore banking destination, with banks holding more than $3 trillion of assets belonging to ‘non residents’.
That is according to the UK-based Tax Justice Network (TJN), which is campaigning for clarity and disclosure within the illustrious international financial service world.
Many rich South Americans, Asians, Australians and Europeans use US banks to keep their assets beyond reach of their own country’s tax authorities.
The TJN also places the US in fifth place for banking secrecy, ahead of Panama, Bermuda, the British Virgin Islands and various other exotic dominions. This is ironic when we learn that the US has, along with other G20 authorities, been pressuring for these other counties to become more transparent with their banking.
This evidence has the ability to shed an interesting light on the role the US is playing in its ‘determination’ to help find other countries’ tax evaders, through their Foreign Account Tax Compliance Act (FATCA). The TJN says America should be looking much closer to home.
Perhaps it is not simply the convenience and financial security of the US market that currently attracts the world’s non-American elites to play in the financial world of the United States. Secrecy has always been recognised as a bonus – one which now seems to be disappearing under the imposition of FATCA.
News to US bankers
Those who have experienced life outside of the United States will not necessarily be alarmed at the irony that America is fast becoming a world leader in offshore banking whilst at the same time trying with all its might, to stamp out the rest of the world’s offshore banking industry for three years that the year FATCA was first signed into law.
It has fast become clear, however, that the US bankers are not all singing and dancing about the new piece of legislation FATCA.
Due to come into force on 1st January 2014 – with some key provisions being implemented in July – FATCA requires all non-US financial institutions to hand over information on taxable US clients and report on their assets to the IRS (Internal Revenue Service), either via the national government or direct to the US tax authorities.
Whether those persons live inside or outside the United States is not a consideration, the straightforward intent of the law’s authors was to enforce greater compliance of those with US tax obligations to the US tax rules.
This, however, is having a detrimental impact on unintended persons, causing severe problems for those involved.
Ian Sweet, of Guardian Wealth Management, states that “the unintended impact of FATCA means that for US expats there are a rapidly declining number of places to turn to for financial advice and support”.
The law is also having other serious consequences too on the unintended victims of FATCA.
American expats and foreign banks have been the first to protest and push back against the new legislation as they face staggering costs associated with fulfilling the directives of FATCA which they feel clearly violate their privacy laws.
Guardian Wealth Management believes the requirements, originally intended to stop US residents hiding assets offshore, could prove harmful to legitimate US expats and jeopardise their savings and investment plans.
Ian Sweet added, “While FATCA is being introduced to ensure US citizens don’t evade US tax, there’s no getting away from the fact it is an obtuse piece of legislation being used currently as a blunt instrument which is causing some serious issues. This is down to the simple fact that, in effect, it labels everyone as potential tax evaders when the majority of US expats have come abroad for career or family reasons.”
The growing concern now, too, has spread to the US banking industry as it comes to terms with the probable loss of freedom it has with regards to offshore banking. This is an interesting add to the mix due to the sheer power of the US banks who comprise a formidable group among the US Congress.
At the time that the whole FATCA idea was under discussion, those tasked with its creation and implementation decided that it would be for the best and would also enable them to eliminate the need for banks to work directly with the IRS, if the US Treasury were to come up with ‘inter-governmental agreements, or IGAs.
In order to comply with FATCA, friendly countries began to set a national framework to do so, these inter-governmental agreements, provides a way for them to do so. This enables them to swap bank information on their nationals as per the agreements of the IGA and to keep in line with the FATCA legislation.
As the multitude of countries under the influence of the IGA agreements continues to increase, the eventuality that these agreements will come to affect the US banks as well is becoming ever more probable, especially considering the veil of secrecy that encompasses the United States.
Once the US began to recognise the potential damage that the IGAs could have on their banking industry, it began its attempt to salvage what it had left. The first step was taken in the form of a letter signed by the Florida’s congressional delegation to President Obama, condemning the agreements, feeling they had the capability to “cause serious harm to the economy of the United States”.
Once the first strike had been laid, it was closely followed in July 2013, by a strongly-worded letter from Bill Posey, a Florida-based Republican, to the new Treasury secretary, Jack Lew. This letter continued to insist that with regards to the IGAs, the Treasury was venturing far beyond its own authority in attempting to negotiate them. He later went on to say that “there seemed to be deep flaws within the new FATCA legislation, in fact were IGAs needed in the first place? According to Posey, the only reasonable outcome would be to either significantly amended or repeal.
Posey’s opposition has now been seen as raising a potential barrier to the implementation of the IGAs, especially given his role within the House Financial Services Committee.
Not solely this, but also, more significantly, the current opposition to the IGAs is raising extensive awareness of the problems and obtuseness of the FATCA legislation. The FATCA legislation certainly undermines the attractiveness of US financial assets and offshore banking, it also creates difficulties where there ought not to be for American nationals abroad as the rest of the world sign on as IRS enforcement agents.