Now is the time for the estimated 1.3 million Americans living in Asia to lobby hard for the end of the global tax law that has turned US expats into financial pariahs.
With a change of administration in the White House; with the Republicans controlling both the Senate and Congress; with the new president, Donald Trump, vowing to revoke some of his predecessor’s ill-conceived, overreaching executive orders; and with his team working on a tax reform package, this could be the best — and only — chance to repeal this toxic, highly controversial and fatally flawed tax law.
The Foreign Account Tax Compliance Act, or FATCA as it’s better known, was rushed through the US Congress in 2010 and came into effect in 2014.
It requires all non-US financial institutions (including banks, insurance companies, investment funds and pension funds) to report the financial information of American clients who have accounts holding more than US$50,000 directly to the Internal Revenue Service (IRS). By using its super power muscle, the US has over the last few years coerced foreign financial institutions and sovereign states around the world into accepting FATCA, or face hefty financial penalties and/or extraterritorial sanctions.
The purported goal of this is to catch wealthy Americans in the US who hide assets offshore to evade tax. Tax evasion is a major global issue that needs to be tackled. But FATCA, with its dragnet approach, simply cannot achieve this effectively. In addition, American expats have got caught in its cross-hairs.
Besides the extra tax filing complications, many Americans living abroad cannot even now hold a bank account in their country of residence. This is because many non-US banks don’t want the burdensome, complex and costly additional reporting liabilities imposed by FATCA. This, clearly, makes life challenging for Americans overseas.
There are other important adverse effects too. James George Jatras, a former US diplomat and foreign policy advisor to the Senate GOP leadership, edits repealfatca.com. He argues that FATCA also violates Americans’ constitutional protections, disregards the mutual respect of sovereignty among nations; threatens American jobs and the American — and therefore global — economy by scaring off foreign investment in the United States; violates trade agreements; and injures America’s global competitiveness.
That’s quite the list of flaws.
But now there is a real glimmer of hope of having it repealed if we can get FATCA repeal legislation in Trump’s highly anticipated 2017 tax reform package.
Plus, says Mr. Jatras, the Trump administration will be in a position to “vitiate the so-called intergovernmental agreements’ (IGAs) even before FATCA is repealed. While foreign jurisdictions dutifully have regarded the IGAs as binding treaties, their status is at best highly dubious under US law.”
In short, there has never been a better time for expats across Asia to lobby their US representatives and to support the various organizations that campaign against FATCA.
However, until it is scrapped, the rules must be followed. Fortunately, there are some well-established solutions to help mitigate FATCA’s negative impact on expats.