FATCA is unfair to Europe because the US government is not playing fair with tax information by failing to swap data.
Members of the European Parliament are calling for the American IRS to give them information on European taxpayers with cash and investments in the US.
The argument hinges on the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard.
The EU wants FATCA to become a two-way street.
Currently, the law demands EU financial institutions report details of US taxpayers with accounts to the IRS, but US financial institutions do not have the same obligation. Many inter-governmental agreements have a clause allowing for this in the future, but the data transfer has not started from the US.
FATCA repeal doubts impact data swap
But EU financial institutions and tax authorities operating the Common Reporting Standard, which has 100 financial centres as signatories, already have two-way disclosure.
The issue is further complicated by moves in the US to repeal FATCA and nullify any inter-governmental agreements in force, which was part of the Republican manifesto for President Donald Trump’s election campaign.
FATCA protestors are lobbying strongly for a repeal, although The White House has yet to include FATCA in an executive order or proposed bill.
US financial institutions say the cost of compliance with the Common Reporting Standard would be too much as every customer would have to be identified as an overseas taxpayer.
USA tax avoidance concerns
The EU argues that every financial centre taking on the Common Reporting Standard already has had to pay to set up data exchange and to identify US taxpayers for FATCA.
“While banks in Europe have made significant investments to implement the CRS and FATCA, the same does not hold true for banks in the US,” Camille Seilles, a legal and tax adviser with the Luxembourg Bankers Association (ABBL), told financial media firm Bloomberg BNA.
“This triggers a distortion in terms of regulatory costs and puts a strain on the achievement of a global level playing field regarding tax transparency.”
The EU is also screening the US for inclusion on a tax avoidance blacklist should Trump decide not to repeal FATCA.