This week brings a wealth of news in the FATCA arena, which we summarize in today’s post.
First, former acting IRS Commissioner Steven Miller speaks out against FATCA and suggests that the benefits of the new information reporting regime imposed by FATCA may not outweigh its costs. An article published by TaxAnalysts on October 7 quotes Miller as follows:
“I can’t even say with conviction that I’m sure, looking strictly on a cost-benefit basis, that FATCA’s . . . benefits are going to outweigh the cost,” Miller told a lunch crowd at the Securities Industry and Financial Markets Association FATCA Policy Symposium in Washington. “It’s not clear to me that when you look solely at the burden placed on financial institutions and others, versus the amount of revenue that may come into the treasury, that this is going to be a revenue-positive event for the United States.”
Miller, former deputy commissioner of services and enforcement and a 25-year veteran of the IRS, acknowledged both problems and progress in the implementation of FATCA and said that he believes “offshore evasion is an area in which noncompliance will never be completely eradicated.”
“While I have high hopes that the implementation of FATCA will be successful and of great assistance in this regard, I fear that it’s not going to be a panacea,” Miller said. “I also believe that we have yet to see the full breadth of creativity in terms of the types of assets that will be used into the future to store wealth overseas.”
Second, joining Miller in criticizing FATCA is National Taxpayer Advocate Nina Olson, who also spoke at the Securities Industry and Financial Markets Association FATCA Policy Symposium. According to an article published by TaxAnalysts on October 8, Olson made the following points in her remarks:
“This is a piece of legislation that is so big and so far-reaching, and [has] so many different moving pieces, and is rolling out in an incremental fashion . . . that you really won’t be able to know what its consequences are, intended or otherwise,’ Olson said. “I don’t think we’ll know that for years. And by that point we’ll actually be a little too late to go, “Oops, my bad, we shouldn’t have done this,’ and then try to unwind it.”
. . .
The raw numbers so far tell a confusing tale, Olson said. In 2011, 170,000 taxpayers filed Form 8938, “Statement of Specified Foreign Financial Assets”; 187,000 filed Form 8938 in 2012, she said. Forty-one percent of 2011 filers also filed a foreign bank account report, she added. However, in 2012 only 21 percent of Form 8938 filers had a foreign address, Olson noted.
“I really don’t know what people’s assumptions were when they enacted this requirement,” Olson said. “Did we expect to get 7 million? Did we expect to get 10 million? Did we expect to get 500,000? Is this a good result? Is this a bad result?” Just one-half of 1 percent of Form 8938 filers had a balance due account after getting notices, compared with 4 percent for the general taxpayer population, she noted.
Olson further noted in her remarks that a new cottage industry has sprouted as a result of FATCA: after foreign banks expressed reluctance to open accounts for some U.S. taxpayers overseas, some businesses began offering insurance to protect against incomplete FATCA disclosures. “So here we now have created a whole new industry for a risk we have manufactured ourselves,” Olson said.
Finally, Switzerland announced on October 8 that it would move toward automatic exchange of bank account information with other countries, including the EU and the United States. (See articles here and here.) If adopted, the earliest date for automatic exchange of data would be 2018 and the new reporting regime would require Switzerland to notify an account holder’s country of origin if a Swiss bank account is opened. Switzerland also announced that it would seek to negotiate a Model 1 Intergovernmental Agreement (IGA) with the United States to implement FATCA, to replace the Swiss-U.S. Model 2 IGA that was reached in February 2013. In a press release, the Swiss Federal Council made the following statements regarding its decision to implement greater transparency in its tax dealings:
The cornerstones of the mandates definitively adopted by the Federal Council today are as follows:
– The introduction of the automatic exchange of information is to be negotiated with the EU.
– Regarding implementation of the Foreign Account Tax Compliance Act (FATCA), a Model 1 FATCA agreement should be with negotiated with the United States. With the new agreement, data would be exchanged automatically between the competent authorities on a reciprocal basis.
– Negotiations on the automatic exchange of information will be initiated with further selected countries. In an initial phase, consideration will be given to countries with which there are close economic and political ties and which, if appropriate, provide their taxpayers with sufficient scope for regularisation.
– The introduction of the automatic exchange of information with foreign countries will be conducted by means of agreements with partner countries. Moreover, implementing legislation will be required in national law. This is currently being prepared by the Federal Department of Finance and will be submitted to parliament together with the negotiated agreements. The existing legislative framework excludes the automatic exchange of information.
Switzerland welcomes the new international standard, to which it contributed actively. It allows for a level playing field in the competition between financial centres, as these regulations apply to all, and is an important instrument in international efforts to combat tax evasion. Domestic bank client confidentiality will not be affected by the implementation of the new global standard.
It is important for the Federal Council that the requirements which it adopted in June 2013 are contained in the new standard. There is to be only one global standard, the exchanged information should be used solely for the agreed purpose (principle of speciality), the information should be reciprocal, i.e. should flow in both directions, data protection must be ensured and the beneficial owners of trusts and other financial constructs should also be identified. Moreover, the Federal Council has stated that the issues of regularisation of the past and market access are to be addressed and solutions sought in negotiations on the automatic exchange of information with the EU and EU member states.