Language:

  • Español
  • English

Counter

  • 740467Total visitors:

(English) FATCA: Exposing the IGA Bait-and-Switch

 

Treasury is acting without legitimate authority in pursuit of these IGA’s. So not only is it foolish for foreign governments to sign up, it is undermining the domestic political process. To add insult to injury, all of this international pain is resulting from Congressional aim at raising a pittance in tax revenues, a mere $800 million per year, or about enough only to fund the federal government at current spending levels for two hours”

 

By Andrew Quinlan, April 24, 2013

There are many problems with the FATCA intergovernmental agreement (IGA) process. From a US perspective, they agreements represent a subversion of the proper treaty process, an unconstitutional expansion of executive powers, and an unwise commitment to saddle US banks with expensive new reporting requirements.

From an international perspective, the IGA’s are deceptive and ill-advised. For more on this perspective, Allison Christians has a great write-up in the Cayman Financial Review that can serve as an IGA primer for those who are still confused about the process and its implications.

 

On Circumventing Privacy Laws

[T]he Model 1 Agreement itself comes in two flavours: non-reciprocal and reciprocal, so the Model 1 choice is an opportunity for additional decision-making. The non-reciprocal model is just that: in such an agreement, the US undertakes to do little more than refrain from immediately imposing FATCA penalties in the case of noncompliance.

The primary purpose of a Model 1-based agreement is therefore to bypass domestic confidentiality laws by interposing foreign governments as information conduits between foreign institutions and the IRS, and perhaps to make some administrative concessions with respect to the reach of FATCA.

On False Promises

[U]nder the Reciprocal Model 1, the US undertakes a few more obligations. The term “reciprocal” nevertheless belongs in quotes, because if there is one characteristic that defines the Reciprocal Model 1 IGA, it is that agreements drafted on this model will most certainly not be reciprocal for some time, if ever.

Instead, the IGA is almost comically ill-named, by its own admission: in Article 6, it states that:
The United States acknowledges the need to achieve equivalent levels of reciprocal automatic information exchange with [FATCA Partner]. The United States is committed to further improve transparency and enhance the exchange relationship with [FATCA Partner] by pursuing the adoption of regulations and advocating and supporting relevant legislation to achieve such equivalent levels of reciprocal automatic exchange.

 

Anyone who pays attention to tax reform (or indeed any legal reform) in the United States will not feel very optimistic for the cause of reciprocity upon reading this language. People living in jurisdictions looking to become FATCA partners might therefore wonder: when my government signs an IGA, what will it give and what will it get in return?

On US Hypocrisy

 

The piece concludes by laying out the hypocrisy behind US efforts to attract significant capital into the country by serving as a tax haven, while simultaneously working to prevent other nations from the same.

The message is clear that while preventing Americans from sheltering their taxes abroad might be a worthy goal for the state, it is not so clear that a preferred strategy would include eliminating those services at home in order to attract foreigners.

…[T]he US has much at stake in the global competition for foreign capital. Indeed, a report from Global Financial Integrity in 2010 found that “the three jurisdictions holding the largest amount of non-resident deposits are the United States, the United Kingdom, and the Cayman Islands,” with the US leading with over $2 trillion in private, non-resident deposits.

Moreover, the United States ranks No. 1 on the Financial Secrecy Index, which “identifies the jurisdictions that are most aggressive in providing secrecy in international finance and which most actively shun co-operation with other jurisdictions.”

This puts the United States in “the role of Switzerland” for other countries, and particularly has allowed the state of Delaware to become “the best place to hide wealth.”

In addition, as I’ve noted before, Treasury is acting without legitimate authority in pursuit of these IGA’s. So not only is it foolish for foreign governments to sign up, it is undermining the domestic political process. To add insult to injury, all of this international pain is resulting from Congressional aim at raising a pittance in tax revenues, a mere $800 million per year, or about enough only to fund the federal government at current spending levels for two hours.

Unfortunately, the IGA’s are just one of many problems associated with FATCA. The law also devastates Americans living overseas by turning them into toxic assets, and threatens America’s global economic competitiveness. Perhaps this is why Congress is beginning to show an interest in correcting its mistake, and we have reason to believe the first legislative step toward repeal may be just around the corner.

Leave a Reply