Campaigners lobbying against the US Foreign Account Tax Compliance Act (FATCA) are leveraging claims that American financial firms are not up to providing tax information for foreign governments.
Reciprocal information is a cornerstone of FATCA agreements between the US and many other governments and without it; FATCA is likely to fall apart because the US cannot keep their side of the bargain.
In simple terms, FATCA intergovernment agreements (IGAs) say a foreign government will collect financial information on US citizens with accounts worth more than $50,000 in their financial institutions on behalf of the IRS, providing the IRS does the same for them in the US.
However Bill Posey, a Florida Republican senator, has voiced concerns that the IRS and US Treasury has the resources to ensure US financial institutions give over information to foreign governments.
Posey has put his doubts in writing to Treasury Secretary Jack Lew.
Repeal FATCA
Opponents of the global tax law claim this letter is further proof FATCA will not work and should be repealed.
However, President Barak Obama backs FATCA and was a driving force behind pushing the law through Congress.
FATCA provisions are due to come into force from January 1, 2014, and affect US taxpayers around the world who earn interest from overseas accounts or make gains from foreign assets.
Dozens of countries have either already signed up to FATCA or indicated that they will take part in the financial information swop network.
The European Union has indicated that work is underway on similar laws that all 28 EU nations must comply with, while the UK is drafting FATCA-style legislation demanding offshore territories and dependencies like the Channel Islands, Isle of Man, Gibraltar and the Cayman Islands reveal details of companies and individuals with holdings in their financial institutions.
Lonely voice
The message from onshore is not one many people with offshore holdings may like, but it’s clear the future of offshore finance involves replacing the traditional veil of secrecy with total tax transparency.
Posey is a lonely voice in the pro-FATCA and international tax transparency crowd.
He claims the Treasury does not have the backing of Congress to negotiate with foreign governments over FATCA and has sponsored a bill designed to repeal FATCA and all similar laws.
Recently, another senator, Rand Paul of Kentucky, broke ranks and introduced a bill to repeal some FATCA clauses that breach personal privacy.
