Resistance to Agreements on FATCA
The US government announced in November 2012 that it is negotiating with some 50 countries Intergovernmental Agreements (IGA) concerning the FATCA legislation. These agreements are modeled on the IGAs announced earlier this year with Great Britain, France, Germany, Italy and Spain. Under these agreements, the foreign financial institutions would report the bank accounts of American citizens to their own governments, which would then exchange information with the US. These agreements are intended to circumvent the legal impossibility of carrying out the initial FATCA legislation since privacy laws in countries throughout the world make it illegal to report client information to third parties, in particular to foreign nations. The IGA agreements include some element of promised reciprocity on the part of the United States, an element totally missing in the initial FATCA legislation, and may alleviate certain reporting requirements of FATCA legislation for certain types of foreign financial institutions and some of the pass-through withholding requirements.
Nevertheless, the IGAs add a new element of complexity into FATCA compliance and carry an enormous burden for the international world of finance. To understand what is at stake with the IGAs, ACA recommends reading a well-informed letter written by a New Zealander to the Australian government warning against the dangers of entering into an IGA with the United States.
Voices in the United States are also denouncing FATCA and the IGA agreements, including US Congressmen and Senators, the Florida banking association, the Center for Prosperity and Freedom and a new website focused on repealing FATCA, www.repealfatca.com, headed up by James Jatras, principal of Squire Sanders Public Advocacy, a Washington-based government relations firm. These voices anticipate the negative impact of the FATCA on the United States through reduced foreign investment in the United States and heavy administrative costs for US financial institutions, responsible for identifying FATCA complying and non-complying foreign financial institutions correctly, withholding taxes if necessary and, more significantly, identifying foreign owned client accounts in the United States if reciprocity is required due to the IGA. While financial institutions in each foreign country are only concerned about reporting on American clients, US financial institutions will have to identify and deal with foreign owned accounts of citizens from countries all around the world. Political pressure is building.