U.S. senators on Friday rejected an amendment to tax-reform legislation that would have repealed the Foreign Accounts Tax Compliance Act, dashing immediate hopes for a repeal of the controversial 2010 law, reports the Cayman Compass.
Kentucky Senator Rand Paul on Nov. 14 introduced his S. 869 bill that would have repealed FATCA. His bill was originally created in 2013 to address concerns about violations of personal privacy, “like NSA [National Security Agency] or snooping on cellphones,” according to Washington, D.C., lawyer and anti-FATCA activist James Jatras, who says he helped Mr. Paul draft the bill.
869 is divided into six sections comprising “repeal of withholding and reporting with respect to certain foreign accounts,” “repeal of information reporting with respect to foreign financial assets,” “repeal of penalties for underpayments attributable to undisclosed foreign financial assets,” “repeal of reporting of activities with respect to passive foreign investment companies,” “repeal of reporting requirement for United States owners of foreign trusts” and “repeal of minimum penalty with respect to failure to report on certain foreign trusts.”
The House of Representatives on Nov. 16 passed its own tax-reform bill, which, after Friday’s Senate move, obliges a joint congressional committee to meet this week in an effort to “reconcile” the two, creating unified legislation that will come before each chamber for final passage.
Friday’s failure to include S. 869 in the Tax Cuts and Jobs Act means FATCA will remain effective as activists shift their focus to the intergovernmental agreements that bind scores of countries to local enforcement of Washington’s legislation.
The Cayman Islands, on Nov. 29, 2013, was among the early jurisdictions to sign a 46-page “IGA,” pledging to report U.S. citizens’ bank accounts and tax information to local authorities, who pass it to the Internal Revenue Service.
Any failure to report assets to the IRS can result in substantial fines not only to account holders, but also to banks, insurance companies, brokerages and other entities – dubbed “foreign financial institutions.”
Speaking from Washington, Mr. Jatras acknowledged Monday that lobbying for Mr. Paul’s legislation had fallen shy.
“Short answer, no, we did not get into the Senate bill,” he said, pointing out that lobbyists introduced Mr. Paul’s bill only days before the Senate vote.
“Keep in mind that this was a target of opportunity we did not anticipate. We took a shot; it looked good; we fell short. No info yet on why. Post-mortem efforts,” he said, adding that “since the repeal provision is not in either House or Senate bill, [the reconciliation] conference will not deal with it.”
FATCA has long been accused of violating the privacy of U.S. citizens and, in some cases, local banking laws.
It has also boosted what critics call a “global compliance industry,” generating fresh bureaucratic structures within FFIs, and expenditures in the millions of dollars.
Locally, economist and director of regulatory consulting firm FTS Paul Byles acknowledged growth of a Cayman “compliance industry,” saying foreign financial institutions had “already invested heavily to implement FATCA,” but pointed to similar European requirements that would nonetheless sustain the bureaucracies were FATCA ultimately repealed.
“While a repeal would reduce ongoing compliance costs, the general obligation to report tax-related information is already being carried out and certainly will continue in the case of CRS even if FATCA is repealed,” he said.
CRS, common reporting standards, designed in 2014 by the Paris-based Organization of Economic Cooperation and Development, are based on FATCA’s Intergovernmental Agreements and oblige FFIs to report the assets of European depositors for purposes of tax and financial information.
Mr. Byles said FATCA repeal would have minimal effect on the hundreds of Cayman foreign financial institutions: “The main implication is some reduction in compliance-related costs as the jurisdiction general has already adjusted to this type of reporting and the financial services sector continues to grow.”
“In the Cayman Islands, the compliance investment has already been made. When you consider the significant investment firms have had to make to ensure they have systems to deal with FATCA, CRS, beneficial ownership and for anti-money laundering purposes, the repeal of a single initiative such as FATCA, while welcomed, is unlikely to have a major impact from a compliance perspective.”
Brett Hill, president of Fidelity Bank, predicted the outcome of the Senate vote and reconciliation efforts. The repeal attempt had been low-profile, he said, and “to be honest, the reality is that the proposed amendment may not pass.”
Butterfield Bank said the question “was best addressed in affiliation with CIBA [the Cayman Islands Bankers’ Association], who can respond on behalf of all banks in the jurisdiction.”
CIBA said it was best “to address this from a holistic industry perspective should this come to pass,” referring questions to industry organization Cayman Finance, which said it was “not something that CF wants to comment on at the moment.”
Pointing to intergovernmental agreements, Mr. Jatras said “there will be other, better opportunities in the future. I am meeting with Treasury [department officials] tomorrow [(Tuesday] and hope to know more after that.”
FATCA critics claim intergovernmental agreements, never authorized by the act, are in effect bilateral foreign treaties, illegal because the U.S. Congress has never ratified them, and may be vacated by executive order.
Article compliments IFC Review.