Those involved in the financial services industry and American citizens with personal finances stretching across national boundaries will no doubt be aware of the additional regulatory burden that the US FATCA has imposed. However, could the law turn out to be short-lived?
What Is FATCA?
FATCA – the Foreign Account Tax Compliance Act – is designed to tackle the non-disclosure by US citizens of taxable income and assets held in foreign accounts. The law is intended to ensure that the US obtains information on accounts held abroad at foreign financial institutions (FFIs) by US persons, including account ownership, balances, and amounts moving in and out of the accounts.
In addition, individual taxpayers with specified foreign financial assets that meet a certain dollar threshold are required to report this information to the IRS. Those required to report under FATCA face stiff penalties for failing to do so.
Generally, laws designed to deter and/or punish wealthy individuals and large corporations that avoid tax are well supported by the public in most countries. However, for some in the US, FATCA is the manifestation of a government that has over-reached, both constitutionally and jurisdictionally.
Senator Rand Paul, a Kentucky Republican senator and a leading anti-FATCA figure in Congress, has called FATCA a “text book case of a bad law.” He argues that it tramples all over Americans’ constitutional protections, particularly with regards to privacy, and that the Treasury has overstepped its authority by concluding what amount to foreign treaties without the Senate’s consent. He also warns that FATCA will damage the US investment environment and all for relatively little additional tax revenue.
It is widely acknowledged that FATCA has been very expensive to implement. The finance industry was recently estimated to have spent at least USD8bn on updating administrative systems. However, many Americans have also paid a high price, with many FFIs now refusing to deal with US clients due to FATCA. This has resulted in US expats being denied access to basic financial services.
The Fight Against FATCA
FATCA’s strongest critics aren’t taking the situation lying down, and have attempted to overturn the law in Congress, albeit to no avail.
At least three bills have been introduced in Congress to repeal FATCA, including by Paul. All expired before being put to a vote.
Absent a legislative solution, anti-FATCA activists have taken to the courts – also without success, at least so far. In the latest case, Senator Paul and six overseas Americans sought a preliminary injunction to stop the enforcement of intergovernmental agreements between the United States and other countries and the account-reporting requirements of FATCA.
The appeal was rejected, as the judge agreed with the lower court that none of the plaintiffs had actually suffered harm as a direct result of FATCA.
The fight is far from over though. Last month, it was confirmed that the case would proceed to the Supreme Court, with the lead lawyer for the seven claimants arguing that the lower courts had “very restrictive standing requirements that are inconsistent with federal law."
Paul is far from a lone voice in Congress. It is worth noting that last year’s Republican election platform called for FATCA’s repeal, saying that it allows “warrantless seizure of personal financial information.”
It remains to be seen whether FATCA-repeal forms part of upcoming tax reform legislation. Even if it doesn’t, attempts to nullify the law are unlikely to dissipate any time soon.