A SENIOR US policy analyst and lobbyist yesterday shot down the notion that the Foreign Account Tax Compliance Act (FATCA) was “here to stay”, calling the impending legislation an invasive plan to “put everybody in a financial fish bowl”.
James Jatras, a principal of Squire Sanders Public Advocacy, told Tribune Business that FATCA’s impact on international financial centres such as the Bahamas could be immense, with international clients pulling money out of US investments to avoid it falling under FATCA reciprocal information sharing and institutions doing likewise, in a bid to avoid the 30 per cent withholding tax liability.
The impact domestically for the Bahamas, according to Mr Jatras, would also be significant. “This thing was written, snuck through in the dark of night with only a handful of legislators aware of it; there was no cost-benefit study done, nothing,” he said.
“This is going to catch a lot of persons here off guard, as not a lot of people know about it. In my experience, when they are informed about it they get angry. They are astounded that something like this would be passed.”
Mr Jatras noted estimates indicate that total FATCA compliance would cost the top 30 international banks a total of $7.5 billion. “If you look at that magnitude of costs being imposed on institutions in the United States , not just banks but insurance companies, pension funds and so forth, that is a lot of money they are spending. Those costs have to get passed somewhere ,and it will be the consumers who feel it,” he added.
Mr Jatras added that if only a tiny fraction of the $21 trillion in foreign investment in the US was pulled out over FATCA fears, the impact on the US economy and jobs could be devastating.
“When all is said and done, the targeting of fat cats and tax cheats and all that stuff is a red herring. It’s a way to shut people up and get them to go along with this great, big invasive plan to put everybody in a financial fish bowl,” Mr Jatras said.
He said international financial centres do not have to take FATCA lying down. “Foreign jurisdictions don’t have to take this lying down. It’s not about standing up to the US or going against the US,” Mr Jatras said.
“In the United States we have a divided government, and this is essentially the initiative of one part of our government, but there are other parts of our government where people don’t like this and I think it would be very amenable to try and undo it if we can give them the information and arguments to do that.”
Mr Jatras added: “The idea that it’s here, it’s here to stay, there is nothing to do about it, that’s certainly what the Treasury Department would like you to think, and that’s certainly what the accounting firms would like you to think.
“It just is not justified by the facts. The good news is something still can be done about it. People have to exercise themselves. They have to actually work at doing something about it to get it undone.
“If somebody from the Bahamas goes and talks to the people on Capital Hill, it probably won’t be a big concern for them. What’s going to have an impact is when they hear more and more about how people in the United States will be hurt by it, then they will sit up and take notice.
“I think that’s why it’s important that Caribbean countries start the ball rolling on a broader information and lobbying campaign that will also then pull in domestic interest once it gets off the ground, because that’s where the real effective changing of minds will take place, in the United States.”
FATCA, which was brought into law in March 2010, is a set of rules set out by the US Internal Revenue Service (IRS) designed specifically to limit tax evasion by US persons living abroad.
Compliance with FATCA will include entering into a Foreign Financial Institution (FFI) agreement with the IRS, if the business concludes that it needs to become a participating FFI.
Under FATCA, US taxpayers holding financial assets outside the US must report those assets to the IRS or face penalties. FATCA will also require foreign financial institutions to report directly to the IRS certain information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest.
FATCA’s demands are thus likely to impose an extra burden on all Bahamas-based financial institutions in terms of resources and time needed to do the extra due diligence, resulting in them incurring increased costs.
Apart from changing procedures to deal with new clients, FATCA will force Bahamian financial institutions to drill deep down into all accounts, investment funds and structures they oversee and manage, in a bid to detect whether there is even the smallest trace of US beneficial ownership. The US has announced FATCA partnerships with five countries where each pledge more tax information sharing between the governments. The five countries are France, Germany, Italy, Spain and the United Kingdom.
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