FATCA Hurts Law-Abiding Americans Abroad: Heritage
Monday, June 16, 2014
The Heritage Foundation has issued a report to demonstrate how the United States
Foreign Account Tax Compliance Act (FATCA) is hurting Americans living abroad,
and has recommended that it should be reformed.
In particular, Heritage noted that FATCA is burdening Americans living overseas
with "enormous financial and legal burdens" through increased compliance
costs and denials of service from foreign banks that do not want to have to
deal with the law. "More importantly," it said, "Congress should
turn its full attention to broader tax reform that would help curtail tax evasion
in a more effective way without resorting to onerous and intrusive regulations
such as FATCA."
FATCA, enacted by Congress in 2010 and taking effect on July 1, 2014, is intended
to ensure that the US obtains information on accounts held at foreign financial
institutions (FFIs) by US persons. Failure by an FFI to disclose information
on their US clients will result in a requirement to withhold 30 percent tax
on payments of US-sourced income.
Heritage pointed out that "FATCA granted the Internal Revenue Service
(IRS) a new level of intrusiveness into the lives of Americans. … Under
the legislation, the IRS is granted enhanced regulatory power in determining,
based on its judgment, whether Americans with these accounts have wrongfully
evaded US taxes."
Prior to FATCA, it said, "the US had many tax information exchange agreements
with other countries to help curb the use of foreign accounts to facilitate
tax evasion. These agreements require FFIs to provide certain information on
customers to the IRS. FATCA goes much further, requiring FFIs – including
banks, stock brokers, hedge/pension funds, insurance companies and trusts –
to report more detailed information to the IRS about their American customers
"FATCA's costly IRS reporting requirements and its significant legal and
financial risks make it unprofitable and arduous for foreign financial companies
to serve Americans," Heritage confirmed, and many FFIs have "adopted
another strategy for avoiding FATCA: simply denying service to American customers.
Some institutions have already closed the pre-existing accounts of their American
clients, (and) lack of access to financial services has made it extremely difficult
for Americans living and working abroad."
While reducing tax evasion is looked on as a "laudable goal," which
FATCA may reduce to a certain extent, Heritage concluded that "whatever
reduction it achieves is coming at a significant cost that could far outweigh
the potential benefits," and that "Congress should reform FATCA's
heavy-handed approach to tax enforcement now to lessen the burden it is imposing
on Americans living abroad and to prevent it from becoming an even bigger problem
as it goes further into effect – one that runs the very real risk of exposing
law-abiding Americans working overseas to greater IRS exploitation and targeting."