My friend Dr. Eduardo Morgan Jr. recently published an article for La Estrella de Panamá, in which he succinctly summarizes not only the goals of but also the significant problems with the Foreign Account Tax Compliance Act.
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.
He also offers an amusing aside:
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.
But to get back on point, Dr. Morgan ends with an excellent question:
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. … 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. … 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.
In an ideal world this would indeed by the global response to such offensive legislation as FATCA. Unfortunately, so many governments have responded simply with resigned acquiescence in the face of US fiscal bullying. To make matters worse, the OECD and the G20 are poised to compound FATCA’s errors with an invasive global tax regime of their own. A GATCA, or Global FATCA, is the next big threat facing tax competition. Global tax bureaucrats, rather than scolding their overstepping American peers, have decided instead to emulate them.
