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In the continuing battle between Europe and American tech companies, score one for Europe.
In a move that could put pressure on its rivals to follow suit, Amazon will start paying taxes in a number of European countries where it has large operations, instead of funneling nearly all its sales through Luxembourg, a low-tax haven that is the home base in the region for Amazon and many other large tech companies.
Several European countries, including Germany and France, have criticized the tax strategies of some American tech companies, including Google, which use complicated structures that sharply reduce the amount of tax they pay in individual European countries.
The European Commission, the executive arm of the European Union, is also investigating whether Apple and Amazon receive unfair state support through low-tax agreements in Ireland and Luxembourg, respectively, where the companies run their European operations.
On May 1, Amazon said that it had started reporting revenue from its operations in Britain, Germany, Italy and Spain. By altering how it reports its revenue, the online retailer may become liable for larger tax charges in certain nations, though it may still be able to reduce its tax burden through other complex accounting practices.
Amazon reported a 14 percent rise in European revenue, to 13.6 billion euros, or $15 billion, in 2013 (the latest full-year figures available), according to company filings.
“We regularly review our business structure to ensure that we are able to best serve our customers,” Amazon said in a statement on Sunday. The company added that the changes to how it reported revenue from its European operations had started more than two years ago.
A spokesman declined to say whether the changes were because of growing pressure from European policy makers on American tech companies to pay more tax on their operations in the 28-member European Union.
The news of changes to Amazon’s tax structure was reported last week by The Guardian.
Amazon faces other pressures in Europe, too. In Germany, local unions have held a series of strikes over employee treatment. Both sides have clashed over how much Amazon’s workers should be paid and other benefits mandated under German law.
The changes to the company’s tax arrangements, however, are likely to put pressure on other tech companies in the United States that funnel the majority of their European revenue through low-tax countries like Ireland and the Netherlands.
In Britain, George Osborne, the country’s finance minister, has championed a so-called Google Tax that imposes a 25 percent tax on the local profits of international companies that are perceived to route money unfairly overseas. The new policy came into effect last month.
And in response to mounting criticism from other European countries, Ireland announced late last year that it would phase out a tax loopholecalled the “Double Irish” that would often be used by tech companies. The structure allows corporations with operations in Ireland to make royalty payments for intellectual property to a separate Irish-registered subsidiary. That subsidiary, though incorporated in Ireland, typically has its home in a country that has no corporate income tax.
The Double Irish policy has allowed companies like Google to limit how much tax they pay on their international operations. The policy was phased out for new companies at the beginning of 2015, and will be stopped entirely by the end of the decade.
Yet, despite the growing clampdown on tax structures used by American tech companies and others, analysts say that European countries are still vying to attract international companies through low-tax policies.
Britain, Ireland and the Netherlands have already created new policies that allow companies to apply for a lower tax rate on profits that result from certain patents that are held locally.
The European Commission, however, is currently reviewing the legality of these so-called patent boxes.
By Andrew P. Morris y Lotta Moberg, University of Alabama School of Law
October 27th, 2011
Domestic policy decisions constrained by competition among jurisdictions to attract capital will be transformed into international decisions dominated by a cartel of wealthy nations.
In this paper, we explore the evolution of developed countries‘international cooperation on tax issues from the initial focus on finding solutions to problems that impeded international economic activity to a focus on protecting a few states‘abilities to collect revenues at the expense of other states.5 We ask why the OECD evolved from a forum focused on lowering transactions costs to increase private sector competition across borders into a cartel aimed restricting competition among states. We conclude that this transition was in part the result of entrepreneurship by a group of OECD staff, who spotted an opportunity to expand their mission, bringing with it a concomitant increase in resources and prestige. They accomplished this by providing a framework for interests within a group of high tax states to create a cartel that would channel competition in tax policy away from areas where those states had a competitive disadvantage and toward areas in which they had a competitive advantage. How an organization formed to promote economic development began devoting resources to restricting competition to benefit some states at the expense of others illustrates an important problem for international cooperation more generally. The dynamics at work in the OECD tax competition case are present elsewhere and suggest that the creation of forums to enhance international cooperation is not always a benign development for states and interests excluded from those forums.
The transformation was also in part the result of changes in the competitive position of
developed economies with respect to the rest of the world. In the competition among states to attract economic activity, larger developed economies had been sheltered from competition by the combination of the costs of conducting international transactions and the barriers to such transactions provided by the mix of capital controls, trade barriers, and other restrictions on financial transactions.
As these barriers declined and investors grew more sophisticated at making use of international financial structures to reduce tax burdens on international transactions, states whose economies‘ size had previously been sufficient to make them attractive locations for investment found themselves struggling to capture revenue from newly internationalized transactions. These states then sought to restrict tax competition, which in turn required them to create a means of delegitimizing such competition and by preventing each other from defecting from the cartel by lowering tax rates unilaterally.
https://poseidon01.ssrn.com/delivery.php?ID=267119122101066079127087015081030077034092086004057035102124030103104110076068105087038017120036122008044068110013108015006102009046056035086098122125029095121004035054023094127103020090127115005004100074117003065027068072115118100007007126097008&EXT=pdf&TYPE=2
https://sites.morimor.com/wp-content/uploads/sites/20/2015/05/Estudio-U-de-Alabama-School-of-Law-sobre-la-OCDE-coo-Cartel.pdf
By Marcelo Gutierrez
Published on Invertax Newsletter
April 6th, 2015
Switzerland and the USA have different attitudes towards the new Standard for Automatic Exchange of Tax Information between countries. Let us look at an overview of the situation in each country1. In the last section we will analyze the use of Trusts as a Strategy for Asset Protection.
invertax.com/newsletter/2015/04/6/PDF/Invertax_6_04_2015_EN.pdf
Washington, D.C., Thursday, March 5, 2015) The Center for Freedom and Prosperity (CF&P) commends Senator Rand Paul (R-KY) for again standing up for millions of taxpayers by reintroducing yesterday his legislation (S.663) to repeal the most destructive and privacy violating provisions of the Foreign Account Tax Compliance Act (FATCA).
CF&P President Andrew Quinlan commented on the news, “FATCA has been just one disaster after another. Congress passed a rash law without first properly weighing the costs and benefits, and now millions of innocent Americans are suffering the consequences. Thankfully, Senator Paul recognizes that it’s not too late to correct this egregious error.”
Included as a throw-in to the 2010 Hiring Incentives to Restore Employment Act, FATCA has overwhelmed the global financial community with burdens completely out of proportion with the law’s predicted revenue returns. FATCA treats all Americans living, working or investing overseas as criminally suspect.
Senator Paul’s legislation was first introduced in 2013 during the 113th Congress. Led by CF&P, a coalition of 22 free market and taxpayer protection groups at that time urged support for FATCA repeal. Signatories included Americans for Tax Reform, the National Taxpayers Union, FreedomWorks, the Competitive Enterprise Institute, Americans for Prosperity, and the Taxpayers Protection Alliance, among others.
Coalition letter: https://freedomandprosperity.org/2013/letters/ctc-letter-on-sponsoring-fatca-repeal/
For more information on FATCA visit https://freedomandprosperity.org/issues/foreign-account-tax-compliance-act/
By JAMES KANTER and MARK SCOTT
January 16, 2015
The New York Times
BRUSSELS — The European Union’s antitrust office on Friday released a preliminary finding that a tax deal between Amazon and the Luxembourg government appears to amount to unfair state aid that may have enabled the company to underpay its taxes for a decade or more.
The inquiry is part of a wider investigation into whether a string of multinational companies, including Apple and Starbucks, sharply cut their tax bills and broke the competition rules of the European Union.
In the face of Europe’s continuing economic problems, the region’s politicians are taking a tougher stance on many of the complex practices used by multinational companies to reduce their tax burdens in the 28-member bloc.
And while the state-aid investigation into Amazon’s dealings with Luxembourg tax authorities remains at an early stage, it could result in a European decision that orders the Luxembourg government to recoup a large amount in back taxes from Amazon. Tax experts said a clawback could reach into the tens of millions of dollars, though that would essentially be a rounding error for a behemoth that generated $20.5 billion in revenue in the three months through Sept. 30, the latest figures available.
“The European Commission’s documents certainly suggest that this tax deal wasn’t properly scrutinized,” said Catherine Robins, a tax partner at the law firm Pinsent Masons in Britain. “Anyone else who has similar arrangements in Luxembourg will really have to look at how this could affect their operations.”
In a 23-page letter released on Friday, Europe’s antitrust authorities outlined a tax arrangement in which Amazon used subsidiaries in Luxembourg to reduce the company’s overall tax obligations.
Like many other international companies, Amazon has its European headquarters in Luxembourg — a tiny country with a population of roughly 500,000 — to take advantage of the country’s low taxes.
Through a deal struck in 2003, authorities in Luxembourg “confer an advantage on Amazon,” the antitrust authority said in the letter. It added that the “advantage is obtained every year and ongoing,” and that it “is also granted in a selective manner.”
Both Amazon and Luxembourg’s Finance Ministry denied that the online retail giant received special tax treatment or benefits. The finance ministry described the European Commission’s letter as “a mere formal step in the procedure,” adding that it “contains no new elements.”
The ministry added that it had submitted all the information requested by the commission, and that it was cooperating fully with the investigation. “Luxembourg is confident that the allegations of state aid in this case are unsubstantiated,” it said.
The publication of the letter reflects heightened scrutiny of how low-tax nations in the European Union have helped large multinationals reduce their tax bills by billions of dollars, at a time when the budgets of larger countries, like France and Italy, are squeezed. The European Commission is already investigating the tax arrangements of Starbucks in the Netherlands, of Apple in Ireland and of a unit of Fiat in Luxembourg.
It is not illegal in the European Union to try to lure businesses with low tax rates. But offering special deals to companies that are not available to their competitors can amount to what is known as illegal state aid.
The Amazon tax investigation — made public last year — focuses on a deal the company struck with Luxembourg in 2003 to cap the amount of tax it paid through so-called transfer pricing, according to the commission. Luxembourg’s tax authorities took a mere 11 days to approve Amazon’s tax structure in the country, the commission noted.
Under the arrangements, most of the company’s European revenue was sent from one unit in Luxembourg to a separate subsidiary that was not liable to pay corporate tax in the country. That reduced the profit that the company generated from its European operations and cut its tax bill, the commission said.
Europe’s competition authorities have asked Luxembourg for more details on why it was “deviating” from international standards when handling this complex structure between Amazon’s two units.
They also called for more details of how royalty payments made between the units were structured, as the unit that received these payments was not subject to taxation in Luxembourg, according to the European Commission’s documents.
The antitrust authorities did not say how much back taxes Amazon might be forced to repay the Luxembourg government if its investigation proved wrongdoing.
In 2013, Amazon reported a 14 percent rise in revenue, to $15.7 billion, for its European operations, which are run from Luxembourg, according to regulatory filings.
Yet that unit reported a pretax profit of $33 million in 2013. It subsequently paid more than $2 billion in royalty payments to the separate Amazon subsidiary for use of the company’s intellectual property.
The European authorities suspect the arrangement involving the two units was “not related to output, sales, or to profit,” and was merely “cosmetic.”
The prominent cases in Luxembourg, where many big multinationals like Microsoft and Apple have operations, put Jean-Claude Juncker, the recently installed president of the European Commission in an awkward position. Mr. Juncker’s role includes oversight of the investigations, yet at the same time, his critics accuse him of having helped turn Luxembourg into a tax haven during his nearly two decades leading that country.
This week, apparently seeking to emphasize its role as an important investor in the European Union, Amazon announced that it had created and filled more than 6,000 new permanent jobs across the bloc in 2014. That is the most the company has hired in one year since unveiling its first European Union websites in 1998.
Luxembourg has also been the subject of intense scrutiny since Nov. 5, when the International Consortium of Investigative Journalists published a reportaccusing more than 300 companies, including the Pepsi Bottling Group, Ikea and FedEx, of benefiting from preferential tax deals.
Mr. Juncker — whose posts in Luxembourg from 1989 to 2013 included finance minister, treasury minister and prime minister — has declined to recuse himself from taking part in the final decisions on the cases in Luxembourg.
As a formal matter, Margrethe Vestager, who became the bloc’s competition commissioner late last year, is leading the tax investigations.
Discouraging overly generous tax rulings would especially benefit smaller companies that “cannot prioritize the resources to tax advice in the same way as bigger companies,” Ms. Vestager told a group of reporters last month.
Yet, Ms. Vestager also suggested the need to keep the investigation focused on the cases concerning Fiat, Amazon, Apple and Starbucks to ensure her findings are strong enough to withstand any eventual challenge in the European Union courts.
By Eduardo Morgan Jr.
The showdown with Colombia.
On October 7th, 2014 Colombia made public the inclusion of Panama on a list of tax havens and the application of discriminatory measures against its economy.
Colombia´s Decree
Decree # 1966 of 2014.
The President of the Republic of Colombia considers:
That as part of harmful tax competition between jurisdictions, tax havens offer attractive tax advantages for capital, financial activities of non-residents and other activities susceptible to geographical mobility, by means of a lax legislation and controls with little or no transparency in relation to services provided to third countries, with inexistent or nominally low tax rates compared to those applicable to similar operations in Colombia; the existence of laws or administrative practices that restrict sharing of information; the lack of transparency at legal or regulatory level or in administrative functions; the no demand of a substantive local presence or real activity of economic substance; all of which can cause distortions in both, investment and commercial decisions, and because of its effect erode the tax base of the Colombian State.
President Santos- Statement
The president of Colombia, Juan Manuel Santos, stated that the measures taken by his government, to declare Panama a “tax haven” is not “a decision against” the Central American country, but a measure to prosecute tax evaders.
Colombia, he added, has to implement a policy that includes these type of measures because Colombia wants to be recognized as “a serious country which fights tax evasion.”
This policy is part of the Colombian commitments in order to join the Organization for Economic Cooperation and Development (OECD).
OECD Organization for Economic Cooperation and Development
Comprised by 34 countries.
What is it?
The Economist magazine calls it a “Rich Countries Club” and Paul Krugman sees it as a Think Tank. I identify as a CARTEL.
The Cartel
It seeks to eliminate competition of countries like Panama, to their financial centers.
So they confessed:
In paragraph 36 of “Improving Access to Bank Information” says the OECD:
“The liberalization (of financial markets) was a response to the threat to the financial markets by “Offshore” financial centers”. These centers, in the 60s and 70s decades, managed to attract foreign financial institutions offering banking systems with minimal regulation and low taxes … at a time when technological advances made them of easy access… “
Pascal Saint-Amans – Director: OECD Centre for Tax Policy and Administration
Note: Pascal forgot the existence of the U.S.A. and the fact that it is the world’s largest financial center.
The most important note of the report
“Paradoxically, the United States, which set the ball rolling with FATCA, does not want to sign up to the new OECD standard, which would require full reciprocity between countries, preferring to stick to its own law instead.”
This was not even mentioned in the local journalist extensive report
Source: Tax Summit in Berlin aims to say goodbye to banking secrecy
https://news.yahoo.com/tax-summit-berlin-aims-goodbye-banking-secrecy-020443470.html
IMF Evaluation – Page 17
General
2.1 General information on Panama
39. The Republic of Panama (Panama) is an independent country located in Central America, bordering both the Caribbean Sea and the North Pacific Ocean, between Colombia and Costa Rica. It has a total area of 17,517 square km with land boundaries.
…41. The country is governed through a unicameral National Assembly with 71 seats. Its member are elected by popular vote to serve five-year’s terms. The Executive Branch is composed of the President, two Vice-Presidents and three Ministers of State. The president is both the chief of State and head of government. Currently there is only one Vice-President and 16 persons have been appointed by the President to the Council of Ministers.
In regard to the information above it should be noted how wrong the bureaucrats of these international organizations are. The total land area of the Republic of Panama, is of 75,416.7 square km. The Executive Cabinet is composed by the President, one Vice-President and fourteen Ministers of State. There are plenty of misguided assessments in the 383-page report that can be discarded by request of the government´s team. Panama has very few deficiencies that can be easily corrected.
We are no Tax Haven
Panama has none of the factors Colombia identifies as tax haven.
- Our tax law contains no law that gives special treatment for investments in Panama, to foreigners or to foreign investors, in general. Tax law is equal for all domestic and foreigners, whether or not residents. Example: Interest on bank deposits. Both nationals and foreigners are exempted. On the other hand, U.S. nonresident aliens are exempted, not so Americans or residents who do have to pay taxes. This is, clearly, a law to attract foreign investment.
- We do not have “lax” controls. Our tax laws are transparent; there are no powers to negotiate fiscal agreements on taxes and our banking center is acknowledged as one of the strictest in the world. Our Banking system has the distinction of having survived unharmed the severe crisis during the Noriega’s period when banks were closed for several months (no depositor lost neither principal nor interest when the system was reinstated). We also passed without damage the banking crisis that began in 2008 when many banks in OECD countries went bankrupt caused, precisely, by “lax” controls on subprime mortgages.
- Our income tax is at the same level, and sometimes higher than some OECD States (example: tax on corporations in England 21% vs 25% in Panama; individuals who earn up to 11k pay no taxes; above 50k pay 15% and then up to 25%. We pay property taxes. Sales and service taxes range between 7%-10%.
- It is untrue to say that foreign enterprises do not have substantial presence in Panama. Some of the most important Colombian companies (banks, cement factories, etc., and more than 106 regional headquarters of multinational companies operate in Panama, some very important. We also have our banking center, (no letterbox banks), the Colon Free Zone, ports, and the Panama Pacific Area where huge global companies like Caterpillar operate.
- Panama has signed assistance agreements with many countries, including fiscal matters. We are founding members of the United Nations; we belong to the WTO and other authentic international organizations.
- Our stock corporation system is acknowledged for its public registry and for the obligation of the registered agent (who must be an attorney) to document the identity of their clients. History shows that whoever uses a Panamanian corporation to commit a crime is identified. No one gets away. Such are the cases of presidents of Nicaragua and Costa Rica; the Peruvian, Montesinos and the Colombian, Murcia. This does not happen in England or in the United States where since 2008 they have been trying to pass the law to “know the client” but because of the opposition of some States (Delaware, Nevada and Wyoming, mainly), which are in the business of selling companies.
What is Panama?
It is a platform of services and international businesses built on three pillars:
- Geographical Position
- Panama Canal
- Ports
- Internet connectivity with five optical cables
- COPA Air Hub
- Free of natural disasters (hurricanes, earthquakes, etc.)
- Legal and financial system
- The Dollar as currency
- Territorial Tax System
- No central bank
- Well-regulated banking center
- Registration of ships and registration of companies, both transparent
- Consular representation in major world ports
- Colon Free Zone
- Law or Multinational Headquarters
- Panama Pacific Area
- City of Knowledge
- Panamanian society and its people
- A friendly country with no tradition of civil wars; without discrimination of any kind, (race, sex or religion, nationality)
- Excellent schools and health centers
Conclusions
- It is clear that Colombia is wrong and completely ignored the reality of Panama. And that according to our laws, we have none of the characteristics that define a tax haven.
- The aggression received from Colombia by including us in a list of tax havens with the consequences that entails, had the positive effect of uniting Panama to defend its platform of services and international businesses that account for 82% of its economy, and therefore is a matter of national security.
- Also, and very important, that Panama was able to demonstrate to Colombia that we are not a defenseless country; the threat to apply our law of retaliation and the criticism to Decree #1966 from Colombian enterprises that use both, our services platform and international businesses in our country, as well as local economic activity (there are important Colombian banks and industries in Panama) resulted in the elimination of such inclusion and in the agreement to undertake negotiations without imposition of any kind. Panama may or may not reach a future agreement with Colombia, but Colombia knows now, that we are protected by rules of international law and the strength of our laws to defend ourselves against discrimination from third countries.
By Alvaro Tomas
In an effort to explain how to live and legislate in their countries, last year, in November, the G-20 held a meeting in Brisbane, Australia. I just read, with great displeasure, the press conference given by the OECD executive Pascal Saint-Amans, who directly attacked Panama, seeking to discredit its banking center. He mentioned in his press conference that “… so pretty good success, especially when you see that all the jurisdictions have committed, except Panama. Not sure I would run to Panama to put my money there”.
Why Saint-Amans, Head of Tax Center of the agency, fails to mention that the United States, just like Panama, has neither signed or will sign any agreement? I presume that he omitted that mention out of gratitude to that country, because if it not were for them he would be speaking German and having weiner schnitzel for lunch. Why doesn´t Saint-Amans mention that the President of the European Commission, Jean Claude Juncker, former Prime Minister of Luxembourg, was the one who orchestrated more than 324 tax schemes for multinational enterprises in his country? Why don´t they request his immediate resignation? Why has such a scandal been kept quiet the European media?
Why doesn’t Saint-Amans require the 24 member countries of OECD which still permit the issuance of bearer shares, to eliminate them as we are doing in Panama? Why doesn’t Saint-Amans show us his tax return? Because, ironically, OECD executives do not pay taxes! What is the interest of this Frenchman to discredit Panama? Is it because we are not white, blue eyes as Juncker?
How is it possible that this Gurria´s lap dog messes with Panamanian banks when many banks of several OECD countries (the United States, Spain, France, Italy, etc.) had to be rescued by their governments or by Germany while, in contrast, the Panamanian bank passed the test with top marks? Our banking center was an example to the rest of the world.
How come Saint-Amans does not mention the European banks still lurching between corruption and scandals; Have they forgotten the Banco del Espiritu Santo or Bankia, in Spain?
Some advice, Pascal: before attacking Panama again, devote yourself to solving the problems of corruption in Europe and to the increasing rise of the extreme right. With these issues you may distract yourself for a while. Do not mess with countries that are doing well and competing to attract foreign investment.
By Tom on December 2, 2014 in News from Panama
By Tom on December 2, 2014 in News from Panama
Von: Tom Brymer [mailto:[email protected]]
Gesendet: Samstag, 6. Dezember 2014 13:02
An: Rogelio Tribaldos, MMG Zurich
Betreff: [SPAM] The Panama Perspective
THE PANAMA PERSPECTIVE
Relevant News, Travel and Real Estate
Mr. Eduardo Morgan of Morgan and Morgan Group spoke to United World to clear up misconceptions about Panama’s tax laws.
Panama is not a tax haven. The country has none of the aspects that, according to Colombia, identify a tax haven.
Our tax legislation does not have any law that gives foreign investors a special treatment. The tax law is the same for everyone; locals and foreigners, resident or non-resident. For example, in regards to interest on bank deposits, both nationals and foreigners are exonerated. This the opposite to what occurs in the US, where non-residents are exonerated but not the US citizens or residents who pay taxes. Clearly, that law is aimed to attract foreign investment.
We do not have lax controls. Our tax laws are transparent, there is no manner of negotiating tax agreements, and our banking centre is known to be one of the strictest in the world. Our banking system has survived Norway’s black times, when banks were closed for several months (no depositor lost capital or interests when the system was re-established) and it also thrived in the 2008 crisis, in which many banks from OECD countries went bankrupt, and this was caused precisely by those lax controls on mortgages.
Our income tax is levelled with that of many OECD states.
Our income tax is levelled with that of many OECD states and in some cases it is even higher. (For example, the tax on corporations in England is 21% and in Panama it is 25%, the tax to natural persons is 0 until 11,000, 15% until 50,000 and then it goes up to 25%. There is also a tax on property, and on sales and services, which is around 7 and 10%.
It is not true that foreign companies have no significant presence in Panama. It would be enough to mention some of the many important Colombian businesses, like banks, cement factories, among others. We also need to consider the activities carried out by multinational companies in the 106 regional offices they have in the country. They all have a meaningful presence in Panama. We also have a solid banking centre, our Free Zone, our harbours, and Panama Pacific, where huge global enterprises operate, like Caterpillar for example.
Panama has signed assistance agreements with many countries. We are founding members of the United Nations and we belong to WTO, as well as to other trustworthy international organizations.
Our corporation system is recognised by its land registration and the Resident Agent’s duty (who has to be a lawyer) to know and prove their client’s identity. History has demonstrated that every person who utilizes a Panamanian legal entity to commit crimes is found. No one is saved. There have been cases with former presidents of Costa Rica, Nicaragua, or Montesinos and also Murcia, the Colombian. This does not happen in the US or England. Since 2008 the US has been trying to pass a law in order to know the clients and it hasn’t been possible because of many states’ objection (mainly Delaware, Nevada, Wyoming) which profit from the sale of companies.
Thomas H. Brymer II
We invite you to visit our country and learn if Panama Real Estate is right for you.
– See more at: https://panamaadvisoryinternationalgroup.com/blog/news-from-panama/panama-is-not-a-tax-haven/#sthash.BYe6Tll2.dpuf
This article appeared in Thomson Reuters Accelus on October 13, 2014.
A key component in the implementation of the United States’ massive financial dragnet, the Foreign Account Tax Compliance Act (FATCA), was the promise of reciprocal information sharing with overseas governments. Without the promise to essentially spy and report on foreign investors participating in American markets, foreign governments likely would have expressed greater opposition to a law that represented a dramatic foray into unilateral fiscal imperialism by the U.S. government. It is now becoming increasingly clear however that, at least for the foreseeable future, the FATCA information flow will largely remain a one-way street, threatening the law’s future viability.
Flawed construction
FATCA’s unusual and convoluted implementation process was a direct result of the legislation’s many and significant flaws. Congress included FATCA as an afterthought to pay for an unrelated stimulus package, never giving the legislation any hearings or debate. Unsurprisingly, this resulted in an impractical law that could not be enforced as written. Specifically, the legislation gave institutions the impossible choice between violating local privacy laws to comply with FATCA, or facing FATCA’s stiff penalties and sanctions.
Responsible policymakers would have quickly responded to realization of the bill’s shortcomings either by offering a legislative fix or rethinking the wisdom of the effort entirely. But since members of Congress were barely even aware of having passed FATCA in the first place, no serious effort to address the situation has been forthcoming, with new calls for reform or repeal only trickling out.
With FATCA’s biggest ideological supporters inhabiting the White House and the Treasury Department tasked with its implementation, a solution to the law’s problems was devised — likely unconstitutionally — without Congressional input or authorization. Through implementation of intergovernmental agreements (IGAs), the United States would allow financial institutions to transmit the private financial data of American citizens and other U.S. persons first to foreign governments, who would then share it with the IRS. As foreign governments considered the agreements to be treaties, conflicting local privacy laws were changed to accommodate the arrangement and foreign financial institutions were let off the hook.
For many nations, pressure on governments from their financial institutions to extricate them from FATCA’s impossible choice was sufficient reason to sign on the IGA dotted line. Some, however, needed greater incentive. To justify the massive time and expense involved in what is basically a strong-arm attempt to require foreigners to enforce U.S. law on its behalf, these governments wanted something in return: reciprocal sharing of information on the U.S. held accounts of their own citizens.
Why reciprocation won’t happen any time soon
Despite what they may have led foreign governments to believe, the Treasury Department has no existing authority to collect and disperse FATCA-level information on foreign investors, a fact confirmed by the administration’s solicitation of such authority in recent years’ budget requests. Several significant obstacles make it unlikely that will change in the near future.
After FATCA was passed, Republicans gained control of the House and may soon take the Senate as well. Most Republicans would prefer the U.S. move to a territorial tax system, which would render FATCA largely moot. Anti-FATCA activists also recently succeeded in getting the Republican Party to add FATCA repeal to its official platform, though only a small number, such as Senators Paul and Lee, have openly made similar calls.
Compounding the administration’s uphill battle for reciprocal FATCA sharing is the likely entrance of the U.S. financial industry into the fight. American banks have sat on the sidelines until now. They don’t bear FATCA’s costs and would only draw unfavourable regulatory attention and make themselves political targets by getting involved prematurely. But should reciprocation gain steam, thus putting domestic institutions into the crosshairs of the same outlandish compliance burdens as their international peers, it’s a solid bet they will ramp up anti-FATCA lobbying efforts. And unlike overseas institutions, domestic banks have political clout in Washington D.C.
It is possible that Treasury might simply grant themselves the authority they need, but doing so in order to impose billions in new compliance costs on a fragile U.S. economy and financial system would awaken a sleeping Congressional giant. Even a relatively minor rule recently adopted by Treasury to require only the reporting of interest deposit information for non-resident aliens took over a decade to implement and sparked strong bipartisan opposition from elected officials. That rule was able to skate by because the impact was limited to only a few states. The same would not be said for domestic FATCA.
It remains to be seen how the international community will react if Treasury is unable to honour its promises for reciprocity. Can it spark enough international resistance to force the U.S. to scrap its unilateral initiative? Unfortunately, there may be insufficient self-awareness left in Washington for the serious soul searching that requires. But if there is, it’s past time for the injection of even basic respect for international comity and political boundaries into the FATCA debate.
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(English) Panama Papers, Tax Planning, and Political Corruption
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(English) For research, we pretended to be crooks and terrorists and tried to buy shell companies. The results were disturbing.
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GAO (Oficina de Rendición de Cuentas del Gobierno de los Estados Unidos)
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Proyecto Senador Levin: Conozca A Su Cliente
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(English) Special Meeting of the Permanent Council, March 30th, 2016
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(English) Switzerland Must Stand Up For Its Financial Centre, Says Geneva Professor
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(English) Common Reporting Standard must include all major financial centres to be effective, warns the IFC Forum
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(English) Forget Panama, try Belgium for a cozy tax deal
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El nuevo paraíso fiscal es EU
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¿Paraíso Fiscal o Plataforma de Servicios y Negocios Internacionales?
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Colombia, la OCDE y el exabrupto galo
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(English) Letter from James Bacchus to Jose Angel Gurria
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OMC falla a favor de Panamá en pugna comercial con Colombia
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(English) Pfizer Chief Defends Merger With Allergan as Good for U.S
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(English) US overtakes Caymans and Singapore as haven for assets of super-rich
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