Tax doesn’t have to be taxing. But the Israeli High Court’s temporary injunction against the enforcement of America’s controversial global tax law FATCA should serve as “a wake-up call” for other nations to rethink enforcing this “toxic, flawed and imperialistic legislation,” according to the boss of a leading independent financial firm that advises high-net-worth individuals (HNWI’s) and expats globally.
The striking comments from Nigel Green, chief executive and founder of deVere Group with around $10 billion of assets under advisement (AUA) that opened a new US hub office in Miami this August, comes as Israel’s High Court of Justice threw a proverbial spanner in the works over Israeli government plans on Wednesday to begin actively implementing the U.S.’s Foreign Account Tax Compliance Act (FATCA) in the country.
Under FATCA, which came into effect in July 2014, all non-U.S. financial institutions globally are required to report the financial information of American clients and U.S. Green Card holders who have accounts holding more than $50,000 directly and routinely to the Internal Revenue Service (IRS) in the United States.
However, just days prior to this process being activated and going into operation in Israel, Justice Hanan Meltzer ordered officials to stop the preparatory work. Now an emergency hearing is scheduled to be held on the matter before September 15.
“Justice Meltzer’s action should be championed,” deVere’s Green asserts, who is an outspoken critic of FATCA. “His wise caution should serve as a wake-up call for other countries to rethink enforcing this toxic, flawed, damaging legislation that is being imposed on sovereign states around the world by the U.S.”
As a judge in the Supreme Court of Israel, by way of background Hanan Meltzer he has taught at Tel Aviv University and was part of the controversial decision by the Supreme Court back in 2009, to order the government to demolish illegally built Palestinian homes in the West Bank.
It should also be pointed out that Mr Green, a British national, has been a long-time and vocal critic of FATCA. The CEO points to “important questions” needing to be asked about what he describes as “the imperialistic nature of FATCA.” Strong stuff.
He is also known for not exactly sitting on the fence when it comes to expressing opinions on topics ranging from US Presidential hopeful Donald Trump’s mutterings (e.g. on ‘Trumpononics’) to the Panama Papers and tax havens.
FATCA could indeed be described as a “masterclass” in fiscal imperialism and unintended consequences. But also of concern is that the US is increasingly secret in matters of financial data. It’s no wonder some have labelled it “horrific” and a nightmare for financial institutions.
For evidence, just take the Financial Secrecy Index 2015, which details global financial secrecy. Launched last November and attempting to shine light into dark places, it revealed that the U.S. has moved up from sixth to third place in the secrecy ranking – ahead of the Cayman Islands – with only Hong Kong (No.2) and Switzerland (No.1) ahead on the secrecy front.
That ranking might make one think (incorrectly) that America is a bona fide tax haven. It is worth also noting that an estimated that $21 to $32 trillion of private wealth is located in secrecy jurisdictions globally – untaxed or lightly taxed. No wonder the authorities want a slice of the action, so to speak.
Perhaps unsurprisingly there a growing trend and an overwhelming number of U.S. citizens are giving up their American citizenship (citizenship abdications), which has been revealed by the U.S. Treasury Department.
And, according to a survey conducted in early 2015 by deVere itself almost three quarters (73%) of Americans living overseas expressed the view that they were tempted to relinquish their U.S. passports.
They also found when canvassing over 370 its American expatriate clients that just under half (48%) would vote for a Presidential candidate who seeking FATCA’s repeal. This was against 29% saying ‘No’ and 23% ‘Don’t know’. So, that would seem to sufficiently take the pulse on US expat thinking.
Perhaps it had something to do with the fact that many U.S. citizens cannot even now hold a bank account in their country of residence since foreign banks routinely feel Americans are too much trouble due to FATCA’s onerous and costly rules in order to comply with and take them on as clients.
As regards the cost to banks around the globe to implement FATCA it has been suggested that it will run to billions of dollars a year.
Sovereignty ‘Violating’ FACTA
As Green argues: “Countries and foreign financial institutions (FFIs) have been coerced into complying with FATCA’s sovereignty-violating, expensive, burdensome and privacy-infringing regulations by the U.S.- or face heavy penalties. In effect, these countries and FFIs are now working as de facto agents of America’s tax authority.”
He adds: “It is claimed by its proponents that this law is designed to catch tax evaders who illegally shelter money offshore.”
This might be a noble aim, just as with the U.S.’ upcoming Section 871(m) regulation on withholding tax covering derivatives investments to be enforced in 2017 on non-US resident investors – aka ‘Aliens’. This particular tax regulation seeks to impose withholding tax of between 15%-30% on a range of derivative investments and income.
According to Green FATCA “cannot possibly tackle this extremely important global issue effectively due to its dragnet, untargeted approach.” Now where I have heard that line before? Oh, yes a whole host of financial regulations initiated by the European Commission. And, it once again underscores the disconnect between the regulators and the industry under the spotlight.
Unintended Consequences & ‘Financial Pariahs’
Instead, he says what it does – due to its plethora of serious unintended adverse consequences – is to brand the some seven million Americans who choose to live and/or work overseas, including many of the 300,000 in Israel for example, as “financial pariahs”.
U.S. expats are now routinely rejected from FFIs, such as banks in their country of residence, as result of FATCA’s costly and onerous regulations. The upshot is that in Green’s view Americans are now typically deemed “more trouble than they are worth.”
Rubbing the point in further he adds: “Similarly, American businesses working in international markets are now often branded with a leprosy-like status. Clearly, this can only be detrimental to their global competiveness and could, in turn, hit American jobs and the long-term growth of the U.S. economy.” Now that of course could well have far-reaching consequences beyond the US itself.
The Israeli High Court decision could represent a landmark moment in the fight to have what Green and others regard as a “controversial and damaging law that should be resigned to the history books.” It’s any guess whether Justice Meltzer’s latest action will encourage and influence more nations worldwide to reconsider FATCA.
Note: The US Internal Revenue Service’s (IRS) website provides FAQs and answers on FACTA issues on its website.