FATCA can still be repealed
Thu 17 May 2012
FATCA is not set in stone just yet, a US regulatory specialist says.
The Foreign Account Tax Compliance Act (FATCA) - the United States regulations that require foreign institutions to report financial details of US clients - can still be repealed, a US regulatory specialist has said.
"To the trained Washington eye, FATCA presents what military planners call a target-rich environment for, first, rendering unenforceable the partnership agreement and the FATCA regulations, and then for final repeal of this monstrosity," Washington-based government relations firm principal James George Jatras said.
In email correspondence with InvestorDaily, Jatras said the public discussion on FATCA in the US had only just started.
"It sounds hard to believe, but you'd be shocked to learn people here have never heard of FATCA, and when you explain it to them their jaw drops," he said.
Jatras supported his argument for a pending repeal by referring to the fierce debates on taxation proposals that will have a much more benign impact on financial institutions.
He pointed to concerns raised by Congressman Charles Boustany, who is also the chairman of an influential congressional subcommittee, about a recent Internal Revenue Service (IRS) regulation requiring banks to disclose the interest they pay to non-resident aliens.
"Compare those obligations to FATCA-related issues that have prompted concerns from Congress," he said.
"Now if that's a concern, what about transfer of information - not just about interest but about the principal; not just about banks but other types of institutions; and not just about non-resident aliens, but resident aliens and large numbers of US citizens?.
"Properly played, those concerns can be magnified into a viable program to first derail enforcement [of FATCA] and then, probably next year, repeal it."
The Financial Service Council argued yesterday, in a submission to the IRS for the Australian government to seek an inter-governmental agreement, that it would allow domestic financial institutions to report to the Australian Taxation Office instead of the IRS.
Jatras said that, although such an agreement provide some respite, a global proliferation of agreements could drive up cost even further.
In particular, financial institutions with foreign branches could face having to comply to multiple compliance regimes and multiple regulators, instead of just one.
"Under domestically imposed partnership compliance requirements, individual firms could be deprived of the ability to make their own business decisions about maintaining US clients and investments weighed against compliance costs," he said.
Jatras rejected the idea that FATCA was too important for the US government to be repealed.
"FATCA is projected to "recover" less than $1 billion a year - enough to fund the federal government for about two-and-a-half hours," he said.
"All truth passes through three stages. First, it's ridiculed, second it's opposed, and third, it's accepted as self-evident."