Tax

Senator Leads Congress Battle To Repeal FATCA

The potential impact of a controversial law aimed at unearthing the overseas financial deposits of US taxpayers has led to one US senator introducing a bill to repeal the Foreign Account Tax Compliance Act (FATCA).

Despite Congress passing FATCA, several issues are causing increasing concern in the corridors of power in the US.

The main problem is that the US Treasury has effectively side lined Congress from involvement in the bill by signing intergovernmental agreements (IGAs) with foreign governments which gives them access to accounts being held overseas by US citizens, but also hands them the same information from financial institutions in America.

As a result, this has raised privacy issues in Washington, with allegations that FATCA infringes on the constitutional rights of US citizens.

Senator Rand Paul, a Republican from Kentucky, has introduced a bill which would block the Treasury from signing IGAs.

FATCA dangers

In a letter to colleagues, Paul also points out that foreign investment is desperately needed to help the country’s economy grow and there is evidence to suggest that FATCA is endangering the estimated £16 trillion invested in the country currently.

He also says that FATCA is a poor way to combat tax evasion.

He said: “It is troubling that FATCA has allowed the Treasury to make decisions independently with foreign nations and over the privacy of US citizens.”

Paul has also highlighted a problem of foreign financial institutions offloading their American customers to avoid having to comply with the new law.

By doing so, those institutions will avoid the hefty penalties which are likely to be imposed on all financial transactions between the US and an institution which has not registered with US tax authorities.

Anti-tax views

The idea is that FATCA will compel banks and institutions overseas to reveal details of any US customers with assets of more than $50,000.

Several countries have already signed up, including the UK, and more are likely to sign IGAs in the coming months.

Paul, who has a reputation for his anti-tax views and has opposed all tax treaties since his election three years ago, is angered by the fact that details of private bank customers in the US will be handed to foreign countries.

He highlights too that the cost of compliance with the law will run into ‘billions of dollars’ and these costs will be passed onto customers.

Paul’s move comes at the same time that the Florida Bankers Association and the Texas Bankers Association filed legal claims against the Treasury and the Internal Revenue Service over the costs of implementing FACTA.

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