FATCA Fails Fair And Just Test Of Good Law Making

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A good test of a fair and just law is that the people who have to comply consider the rules fair and just.

Now and then a law sparks controversy and one such law is the US Foreign Account Tax Compliance Act (FATCA).

Five years after the law hit the statute books and a year into compliance, FATCA is still beset with protests, law suits and criticism.

FATCA is supervised by the US State Department and the Internal Revenue Service (IRS).

The aim is to collect data about US taxpayers from foreign financial institutions for cross-checking against tax filings to ensure everyone is declaring their full worldwide earnings and any tax due.

Outspoken opponents

The unforeseen consequences of FATCA arise from the USA’s insistence that all citizens are taxed on their worldwide income regardless of if they are resident in the States or expats.

Around 8 million live and work overseas and FATCA has made their lives a nightmare. Banks and financial firms are shunning them as customers, accounts held for years are being closed and mortgages foreclosed.

FATCA opponents range from US expats to congressmen.

One of the most outspoken happens to be English – Nigel Green, chief executive of a leading network of international financial advisers, deVere Group.

deVere Group has more than 70 offices and 80,000 clients, many of whom are US expats suffering under FATCA.

Disastrous law

The latest move – another indication of the unpopularity and unfairness of FATCA perhaps realised now in Washington – is that foreign financial institutions could be exempt from FATCA reporting information about US expats living in their countries under a Same Country Exception (SCE) amendment to the law.

Green feels this is one small step by the US government, but not one far enough in the right direction.

“I suspect that the ‘roughly eight million Americans who live abroad’ actually want a full repeal of this toxic law. I would suggest that the majority would consider Same Country Exception (SCE) as little more than a cop out and a thinly veiled attempt to try and sort out this disastrous tax law that as I have said previously is a “masterclass in the law of unintended consequences.”

“So strong is the support amongst American expats to have FATCA fully repealed, that in a recent deVere Group poll late last year, 73% of Americans who live outside the US are tempted to give up their US passports in response to the introduction of FATCA.”

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14 COMMENTS

  1. Thank you very much for your article. However, you did fail to mention the two FATCA lawsuits in process:
    1) Canadian FATCA Lawsuit – they had their preliminary
    hearing on 4 August.
    2) US FATCA Lawsuit – filed on 14 July with a preliminary
    injunction hearing scheduled for 4 September.

    • A court in Canada is considering an injunction against the Canadian FATCA IGA. So injunctions under consideration in two countries.

      Canadian legal action lead by The Alliance for the Defence of Canadian Sovereignty (ADCS). They need donations to keep up the fight. Check out the message boards at The Isaac Brock Society for updates on the Canadian and US lawsuits against FATCA.

  2. I and two family members went to a Bank in my country (not the USA) yesterday to open a securities investment account. None of us are US Citizens or Green Card Holders or Spouses of same nor children of same. Yet after such questions there was a further one … Have you spent 31 days or more in or transiting the US in the last year or 183 days doing such over the last three years. Good grief ! Consider Europeans who take long summer vacations .. or Canadians who might want to winter “down south” or West Indians who might want to support the US economy on frequent shopping trips (whether for personal use or for resale in their own countries), medical appointments, family events and visits and so on. South Americans would be in a similar situation. Since no one knows what the consequences of answering yes to either of those two questions might end up being, needless to say, as I am the only one of my local family likely to visit the US at all, I was unable to participate in the account. Thank you America (NOT).

    • The reason for the question regarding the length of stay in the United States is that any person who was in the country for more than 189 days over a period of 3 years (the formula is a little more complex, but this is the essence of it), is subject to US as any other resident. This is the way US tax law is written. Most countries do have a similar substantial presence test. In fact the UK recently introduced a similar statutory basis to determine residence.

      I am not sure about the reason for the 31 days question.

      These questions are not new and only indirectly a result of FATCA. Banks participating in the predessor of FATCA, the Qualified Intermediary Program, would have asked the same questions, dating back to the early 2000s.

      • I have done some research and see that this is indeed part of a Substantial Presence test. Formula seems to be to Add ALL days in US in last year to 1/3rd of the days in the US in the preceding year and then add 1/3 of the days in the US in the year before that and if the hash total exceeds 183 days then one is deemed to have a substantial presence. Thus (simplistically) if one does not exceed 120 days in the US in each of the last three years then one is in the clear. HOWEVER:

        What does the 31 day thing trigger ? A counting and a review of days by whom ? Does one’s data get sent to the US if one exceeds 31 days?

        Is it Morally right that the ability to open a financial account in MY country (or any other country outside the US) is now dependent on counting days of visiting the US over the last three years ? What happened to the Sovereignty and the Charter of Rights in MY country. What if EVERY country did this? Worldwide !

        • Charters and freedoms work both ways. Private banks are free to decide who they want to do business with and on what terms. If they feel that the benefits of conducting business in the United States outweigh the loss of potential business of the likes of yourself, they should be free to act accordingly.

          Anyway, good luck in your financial affairs.

  3. The Same Country Exemption (“SCE”) proposed by Democrats Abroad is an absolute nonsense .. a cheap political PR stunt. Consider whether you might want financial accounts in third countries if YOU were living in Greece and now finding that you cannot withdraw more than peanuts from your Same Country bank account each day …. of if you are a US person working in the Oil Industry in North Africa or the Middle East …. would you really want your financial accounts in Libya or Syria or Yemen or etc ….. or if you lived in Eastern Europe and needed to keep one eye open to watch the movement of Russian Forces on your border … wouldn’t you want to have financial accounts further away from the border ? or you are living in France and you are concerned that Radical Muslims (supporters of ISIS) working inside the banking sector might get access to your file and identify you as a US Person. The SCE is a failure ab initio … it solves nothing. SCE also does not solve the massive imposition of costs and impediments on countries like my own. FATCA makes the world a more dangerous place for all people and especially for Americans and those connected in any way to America.

    • SCE provides no relief from FBAR penalties (for accounts in your country of residence), does not exempt ones retirement account from double taxation, allow one to invest in mutual funds in ones country, allow one to have trusts in ones country of residence, and does not provide blanket exemption from double taxation.

      Requiring double taxation and expensive obtuse compliance for $0 in US government services fails fair and just test of good law making.

  4. This is turning into a huge embarrassment for the American government. Citizen based taxation steals money from foreign economies (all non-Americans should be incensed), FBAR invades privacy of both citizens and foreigners (family members, businesses, and non-profits) who are assumed to be guilty of tax evasion and must prove their innocence, and FATCA extorts the rest of the world with threats of penalty into complying with these heinous laws.

    The expat view of home — The Land of the Fee and the Home of the Slave!

    • FBAR penalties alone could REALLY steal a chunk-o-change from the local economies. FBAR filing goes back for 6 years. Say you had a checking account, savings account and an investment account (3 FBAR filings with an aggregate > $10,000). The penalty is $10,000/account/yr.

      $10,000 x 6yrs x 3 accounts = $180,000 x the # of expats in your country

  5. Immigrants to the US are pretty sick of having to report in duplicate our accounts into nonsensical forms with massive risks for non-compliance. We are sick of worrying about the information retention laws on these accounts with the same terrible fines for mistakes. We are sick of crazy taxation laws that make these accounts subject to confiscation. Of course we have no choice but to leave our tax treaty protected pension in foreign countries. So to us it feels like the USG puts these penalties in place to trick us and take a portion of the balances.

  6. Thank you for this article. Even Nina Olson of the Taxpayers Advocacy Service which is part of the IRS has asked “Why do we torment our expats so?”
    Nobody is doing anything about it because America wants the money, pure and simple. It doesn’t care where it comes from, just or unjust. Why should expats- people who do not live in America- pay for the repair of roads they do not use? Why should expats in Canada pay taxes to America on their retirement funds which are not taxed in Canada? And why should penalties be so severe that they make up 139% of the monies they take in, instead of actual taxes? Why should anybody be doubly taxed because the bottom line is that the american tax system collides with foreign tax systems and they are not compatible. All of this is basically unconstitutional because Americans abroad are treated as second class citizens without the same rights as those resident in America. Homelanders shout “Pay you FAIR share” when there is nothing fair about it, as you have already noted.
    Maybe you should do an article on how much in taxes could be coming in if tax havens like Delaware and Wyoming have to open up their books?

  7. FATCA is definitely not “supervised by the State Department and the IRS”, but by the Department of the Treasury, of which the IRS is a sub-division.

    Difficult to take an article seriously when the author cannot get even the basic facts right.

    • I think that one would be a little remiss were one to ignore the rest of the article due to a possible slip in one sentence. Anyway BTW, who deals with issuing Certificates of Loss of Nationality ? That all important document that MIGHT get you some degree of privacy.

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