ACA's Position on FATCA - Update
ACA supports Congress’s efforts to combat tax evasion, but many of the provisions of the FATCA tax evasion legislation have resulted in serious negative effects both on Americans living and working overseas and for the US economy. US citizens must disclosure their overseas accounts on FATCA Form 8938 or are subject to steep penalties based on willful tax evasion behavior. If foreign financial institutions (FFIs) do not comply with reporting on their US clients, all US-based investment transactions will be subject to a 30% withholding tax.
The unintended consequences of FATCA:
- FATCA complicates US tax compliancy (confusion between the FBAR FINcen Form 114 and FATCA Form 8938), increasing the risk of filing errors and subjects individuals to steep willful tax evasion penalties for simple reporting errors.
- FATCA is causing some foreign financial institutions to turn away American clients; refusing them services, closing their accounts or charging them higher fees to service their accounts.
- FATCA is creating unnecessary added bureaucracy for the US with little financial return to the US. FATCA passed Congress with no cost/benefit analysis and recent data indicates that the revenue predictions for FATCA are highly overestimated.
- FATCA increases the risk of identity and data theft, of particular concern for Americans living overseas with the heightened threat of global terrorism.
- FATCA dis-incentivizes investment in US markets as foreigners owning US securities are subject to the same reporting and withholding penalties as Americans.
FATCA has touched off a global movement for automatic exchange of information in order to fight tax evasion. Foreign governments aim for reciprocity with the United States through the IGAs (bilateral intergovernmental agreements) However, unlike the United States, many foreign governments operating under residence-based tax policy want to receive information on individuals residing in their countries and not declaring income, whereas the United States seeks information on all US residents, living both domestically and internationally, because of its unique citizenship-based taxation (CBT).
ACA believes that the solution to FATCA tax legislation is for the United States to adopt residence-based taxation (RBT). ACA has submitted proposals for RBT to the key tax writing offices of the US Congress; Ways & Means Committee, Senate Finance Committee, Joint Committee on Taxation. Until residence-based taxation (RBT) is passed, ACA recommends that “Same Country Exemption” (SCE) be adopted as a corrective measure. SCE would remove the reporting requirement (FATCA Form 8938) for the financial accounts located in the country where the American resides. For example, an American living in Frankfurt, Germany would not report the accounts he holds in Germany and neither would the bank report on the US citizen. For a more detailed description of Same Country Exemption (SCE) see this ACA document.