By: Eduardo. M.
FATCA, or the Foreign Account Tax Compliance Act, is a U.S. law which requires banks and financial institutions located abroad to report on deposits and financial assets of U.S. taxpayers, thus extending the rule of US fiscal legislation and making banks and countries worldwide U.S. tax collectors. The U.S. can impose this law because the dollar’s status as an international currency of exchange which requires that banks and financial entities have deposits and exchange transactions with the banks located in the U.S. By not submitting to FATCA, transactions conducted in the U.S. are subject to a withholding tax of 30%; this compels them either to comply or withdraw from international business.
The Intergovernmental Agreement (IGA) was created purposely to soften the fierce opposition of the global banking industry to the enormous costs of its implementation and to avoid violating various countries internal laws regarding privacy of information., The Federation of European Banks calculates that it will cost $7.5 billion solely for its 30 largest banks This agreement between nations allows banks to provide the information to their respective governments, who would in turn make it available to the U.S. government. IGA offers the incentive of reciprocity under which the U.S. will in return provide information about the accounts of those countries citizens’ in their banks. However, that promise of information reciprocity has strong opposition from the U.S. banking industry, because of the high cost of implementation and maintenance, and the fear that many foreign deposits would be lost. The United States world’s largest fiscal paradise, and their banks hold approximately two trillion dollars in foreign monies for which taxes are neither paid, nor reported. As an interesting parallel, the Spanish name for the parasitic vine that imprisons and sucks the sap and life from the host tree, is spelled “Higa”, pronounced IGA. Of course, the IGA does not include removing the famous Qualified Intermediary Agreement between the foreign financial intermediary and the IRS that guarantees full secrecy of the identity of their customers who invest in the U.S. economy (foreign companies and individuals, meanwhile, had ownership stakes in U.S. companies valued at $2.9 trillion. Foreigners had $4 trillion worth of assets in U.S. bank and brokerage accounts. Altogether, foreign-owned assets in the United States totaled $25.16 trillion).
FATCA directly affects six million U.S. residents in foreign countries who have great difficulties utilizing local banking services because of the sheer number of controls imposed. These controls–even before FATCA came into existence–are responses to banks’ fears that U.S. clients can be accused of not paying taxes in the U.S., thus possibly implicating the bank as an accomplice. Of those six million expatriate U.S. citizens, some work in U.S. businesses, but the vast majority are immigrants. The impact of FATCA’s announcement has already provoked massive renunciations of US citizenship, to the point that some senators are introducing bills to halt them; some are even proposing the extreme measure–never before witnessed in that country–of the establishment of a “departure tax.” Threats are being made that such groups or individuals will never again be able to travel to the U.S. It is unthinkable that should the U.S. convert such a policy into law, it would in effect be in violation of article 13 of the Universal Declaration of Human Rights concerning the right to emigrate.
Why has neither the OECD nor the G20 taken a stand on FATCA, whose existence constitutes a clear violation of international law and which will cause worldwide increase in the cost of banking services? Both the OECD and the G20 require that member countries comply with international standards, one of which is the factor of residency for the collection of taxes, including universal income. This means that under the universal tax system, a citizen of Europe, Mexico, China, India, Japan, etc., pays taxes to their country of residence. For example, a Mexican who lives in France does not have to pay taxes in Mexico but in France, his country of residence. (Panama does not use universal taxation system; rather, it applies only a territorial system.) In contrast, the U.S. violates this international standard and taxes its citizens wherever they reside, and implementation of FATCA will require that the rest of the world become tax collectors for the U.S.
The G20, which encompasses the world’s most important economies, as well as the wealthy nations club which comprises the OCDE, should require that its principal member eliminate FATCA and instead adhere to international standards. What the U.S. is pursuing could be attained by means of either the Double Tax Treaties or with the Tax Information Exchange; the application of the latter would not have a negative impact, nor FATCA’s ridiculously high costs. It is time that the world make the U.S. realize that there are international norms and standards which demand respect, and that it should return to being the example of freedom, justice and democracy its forefathers bequeathed to the world.
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