www.RepealFATCA.com 2013 World Credit Union Conference July 15, 2013 – Ottawa Getting rid of “the worst law most Americans have never heard of.” -James George Jatras www.RepealFATCA.com 2013 World Credit Union Conference July 15, 2013 – Ottawa Introduction • • • • • • • • • Lack of jurisdiction: No requirement that FFI be present in the U.S. FATCA applies to all FFIs, everywhere. No valid legal theory for applying U.S. law abroad. Extraterritorial: U.S. law to force reporting only by foreign institutions (FFIs). One-sided: Not a word about reciprocity in the FATCA law. Anti-sovereignty: You must obey our law or be punished. Expensive: Millions of dollars in costs per FFI, $1 to 2 trillion aggregate. Anti-privacy: Reports information not just of “U.S. Persons” but millions of nonAmericans: “accidentals,” dual citizens, spouses: (e.g., 1 million Canadians). Not an anti-tax evasion law : Not a single provision in FATCA targets actual evasion activity. Reprisal: “Recalcitrant” FFIs: 30% withholding; expropriation, sanction, not “tax.” Fear: “We have no choice.” Either FFIs comply, or hope for rescue via intergovernmental agreement (IGA). www.RepealFATCA.com 2013 World Credit Union Conference July 15, 2013 – Ottawa Example: CANADA • • “Finance Minister Jim Flaherty has said Ottawa is ‘nearing a conclusion’ on the issue, suggesting a similar arrangement as reached by the U.K. is in the offing. . . . ‘An agreement with the U.S. to share information on a government to government basis, within prescribed limits, will bring certainty to the application of the FATCA regime to Canadians, and will also facilitate compliance by our financial institutions,’ he said in a statement. . . . “[Canadian Bank Association President Terry] Campbell said [Canadian] financial institutions have no choice but to comply with U.S. law because the penalties can be onerous — a 30-per-cent tax on U.S.-source income. . . . ‘(But) short of having the U.S. authority change their law, and short of having the world financial system being radically restructured, neither of which is going to happen, authorities around the world have come to the conclusion they must deal with the United States to make this as administratively feasible as possible.’” [“Canadian banks wary of U.S. tax disclosure law: U.S. law FATCA forces dual citizens to file two returns whether or not they have paid in Canada,” The Canadian Press, 11/28/12] www.RepealFATCA.com 2013 World Credit Union Conference July 15, 2013 – Ottawa How did we get to this point? Why did Congress pass FATCA? • • • • • • • • • “ ’FATCA’? What’s that?” Almost no one in the U.S. (including in Congress) has heard of FATCA. Hearings on U.S. assets (claimed “$100 billion”) hidden abroad – but no examination of FATCA as a mechanism. Require disclosure by everybody: a global “stop and search law”. Assumed that U.S. “fat cat” tax cheats will just fall out of the woodwork. Passed as a “revenue offset” (would “recover” revenues of less than $1 billion per year vs. $1 to 2 trillion in costs to firms globally). Slipped into HIRE Act (jobs bill) in 2010 with no cost/benefit study, no regulatory impact study (“only will hit foreigners”), no Senate or House “floor” debate. No awareness that foreign laws would block FFIs’ compliance. No awareness of impact on U.S.: withdrawal of foreign investment, jobs. Top DC tax attorney Herman Bouma: FATCA is “sheer idiocy.” www.RepealFATCA.com 2013 World Credit Union Conference July 15, 2013 – Ottawa Why intergovernmental agreements (IGAs)? • • Hundreds of thousands of FFIs in almost 200 countries. The U.S. Treasury Department realized early on that FATCA was unenforceable: – “Mark Matthews, . . . former head of the criminal investigation division at the IRS. ‘It [the US-UK IGA] is clearly less airtight and bulletproof. But the (FATCA) statute as written was wholly unachievable.’” [Patrick Temple-West, “U.S. overseas tax dragnet refocuses on country partnerships,” Reuters, 9/18/12] – Professor J. Richard Harvey : “The long-term success of FATCA may depend upon whether the US can convince other countries to adopt a similar system, or better yet, join with the US in developing a multilateral FATCA system. . . . The major weakness of FATCA is that the US is attempting to unilaterally require FFIS to report information to the US. . . . [T]he US could continue down the course of unilateral adoption of FATCA with the hope that the US investment market is sufficiently large . . . If the US were to abandon FATCA, it would be a serious long-term setback to addressing offshore tax evasion both in the US and the world.” [“Offshore Accounts: Insider’s Summary of FATCA and Its Potential Future,” Villanova Law Review, Vol. 57, Issue #3, Dec. 2011] • Treasury’s only solution: foreign governments enlisted as IRS’s deputies to impose foreign (U.S.) law on their own FFIs (at their own expense). www.RepealFATCA.com 2013 World Credit Union Conference July 15, 2013 – Ottawa To impose IGAs, Treasury counts on panic from FFIs: “Save us from FATCA!” • • • • • • • • Draft regulations on FFIs due by end of 2011 were delayed: 388 pages released in February 2012. (The more complex, confusing – and scary – the better!) “Joint statement” on “automatic data exchange” with five EU countries in February 2012. – (Letter from four Senators to Treasury Department in July 2012.) Release of draft IGAs: Model 1 (“reciprocal”) and Model 2 (“non-reciprocal”) in July 2012. First IGA signed with United Kingdom in September 2012. Final rules were due in November 2012 (but not released in January 2013): 544 pages. Despite Treasury claims of “momentum” 2012 ends with whimper (four, not 17). Pace of IGA signing progress continues slow through 2013, selling FATCA model in G8, G20, OECD: toward “GATCA: Global Account Tax Compliance Act” Beginning of FATCA regulations phase-in delayed from January to July 2014 – maybe. Treasury’s claim of “groundswell” interest in IGAs is absurd. www.RepealFATCA.com 2013 World Credit Union Conference July 15, 2013 – Ottawa IGAs are a flawed solution to FATCA’s already fatal flaws • • • IGAs are not treaties nor authorized by FATCA: force of law for non-U.S., not for the U.S. Annex II is no real protection for FFIs: U.S. can cancel, hence change terms, at any time. U.S. promises of “reciprocity” to non-U.S. governments under Model 1 are spurious: – Art. 2(b): limited non-resident alien (NRA) interest reporting (under fire from Congress, in Courts) – Art. 6(1): No legal authority to require U.S. firms to report “equivalent” data: Reciprocity. The Government of the United States acknowledges the need to achieve equivalent levels of reciprocal automatic information exchange with the United Kingdom. The Government of the United States is committed to further improve transparency and enhance the exchange relationship with the United Kingdom by pursuing the adoption of regulations and advocating and supporting relevant legislation to achieve such equivalent levels of reciprocal automatic exchange. • Treasury admits it has no authority for “equivalent levels of reciprocal automatic exchange,” hence needs new legislation (requested with FY14 Budget, next slide). www.RepealFATCA.com 2013 World Credit Union Conference July 15, 2013 – Ottawa Administration’s request for new authority (in (Analytical Perspectives to the Fiscal Year 2014 Budget, page 202): Provide for reciprocal reporting of information in connection with the implementation of the Foreign Account Tax Compliance Act (FATCA). — In many cases, foreign law would prevent foreign financial institutions from complying with the FATCA provisions of the Hiring Incentives to Restore Employment Act of 2010 by reporting to the IRS information about U.S. accounts. Such legal impediments can be addressed through intergovernmental agreements under which the foreign government agrees to provide the information required by FATCA to the IRS. Requiring U.S. financial institutions to report similar information to the IRS with respect to nonresident accounts would facilitate such intergovernmental cooperation by enabling the IRS to reciprocate in appropriate circumstances by exchanging similar information with cooperative foreign governments to support their efforts to address tax evasion by their residents. The proposal would provide the Secretary of the Treasury with authority to prescribe regulations that would require reporting of information with respect to nonresident alien individuals, entities that are not U.S. persons, and certain U.S. entities held in substantial part by non-U.S. owners, including information regarding account balances and payments made with respect to accounts held by such persons and entities. www.RepealFATCA.com 2013 World Credit Union Conference July 15, 2013 – Ottawa “D(omestic)ATCA”: Chances of Congressional enactment of new legislation for “equivalent levels of reciprocal automatic exchange” are virtually zero • Existing NRA regulations already under fire: – – – – • • • • • • Texas and Florida banks’ lawsuits. Legislation in House (HR 2299) to block NRA authority (strong bipartisan support). ABA opposition to NRA reporting to Mexico. Letter to Sec. Lew from Rep. Posey: reciprocal reporting authority blocked. Request for new authority is far more intrusive, burdensome than NRA; multiple countries. A net revenue loser for the U.S. government. FATCA’s costs meant to fall on FFIs: no appetite for massive, new domestic regulatory mandate. Overall gridlock in Washington, no “dark of night” passage like FATCA. Congressional vendetta against IRS/Treasury, NSA scandal. Only reason final rejection hasn’t been announced is lack of awareness of FATCA, Treasury’s promises. Underappreciated by FFIs and foreign governments: United States does not have a parliamentary system. Treasury is not “the Americans” – Congress is too. www.RepealFATCA.com 2013 World Credit Union Conference July 15, 2013 – Ottawa IGAs a potentially fatal problem for FATCA • • • • • • • • • Paradox: FATCA is unenforceable (“wholly unachievable”) without IGAs, but . . . . . . IGAs are provoking domestic opposition. No reciprocity – no IGAs? Race against time between Treasury and growing domestic U.S. awareness. What will foreign governments do without reciprocity from the U.S.? Window to get rid of FATCA is not long-since closed – in fact, is just opening as problems become better known in the U.S. “FATCA is not going away” – sez who? Possible “train wreck” in 2014 if Treasury tries to enforce FATCA unilaterally. Who’s more afraid of “pulling the trigger,” FFIs – or Treasury? Will FATCA exist three years from now? Need to take advantage of vulnerabilities before major damage inflicted on global financial system (including credit unions). www.RepealFATCA.com 2013 World Credit Union Conference July 15, 2013 – Ottawa Mood building in the U.S. against FATCA – but slowly • • • • • • • • Rand Paul repeal bill S. 887 introduced in May, House expected; item for tax reform package (2014, 2015?). CUNA, taxpayer groups, liberals, Greens, expats, support FATCA repeal, oppose new legislation for “reciprocal” reporting. House rejection of new domestic reporting authority (Posey letter): cripple IGA process, render FATCA unenforceable, set up for repeal. Catastrophic Care Act, Dubai Ports: examples of sudden and dramatic collapses of seemingly “solid” initiatives. Biggest problem remains lack of awareness about FATCA in the U.S. But this is also an opportunity to “brand” FATCA negatively with public, Congress. Focus on harm to U.S. and Americans (jobs, consumers), which matters politically in U.S., not impact on FFIs. Support needed for American repeal arguments. The “FATCA Compliance Complex” (FCC): lawyers, accountants, software, media. Disparity of resources: FFIs spending millions each on FATCA compliance, but as yet nothing to help get rid of FATCA. That needs to change. www.RepealFATCA.com 2013 World Credit Union Conference July 15, 2013 – Ottawa What should Credit Unions do? • • Option 1: Just comply – if they can (violation of human rights, data laws). Option 2: Press for IGAs: protections uncertain, deprivation of business decision. In the absence of an IGA, non-U.S. governments can resist: China, Swiss parliament. – – – – • • • Don’t sign IGAs. Every IGA is a lifeline for FATCA. Don’t allow foreign (U.S.) law to be enforced on an extraterritorial basis. Don’t allow FFIs to submit to foreign (U.S.) law over domestic law. If U.S. attempts unilateral enforcement: lawsuits, WTO actions, counter-sanctions. Option 3: Aid in U.S. repeal effort: help us educate Congress, U.S. public. Option 4: Some or all of the above: hedge their bets. If firms invested 1% of what compliance would cost into repealing FATCA, could save the other 99%. Relative costs and risks need to be assessed on individual firm and country basis.