There is an excellent article, How to Avoid FATCA – Tips From Senator Levin, by Virginia La Torre Jeker, an international tax lawyer in Dubai, up on AngloInfo.
The article is an analysis of a report that was published last month by the U.S. Senate Permanent Subcommittee on Investigations called Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts.
A great read and I recommend it to all of you. Allow me to make a few additional points just to stir the grey matter a bit more:
Billions, Billions Out There! The American government has no clue how many American citizens there actually are outside the United States, only estimates. So how do they know how much potential tax revenue there is out there beyond the borders of the United States? They don't. Those much cited figures of 150 - 200 billion USD in uncollected U.S. taxes were pulled out of thin air.
You heard me. All those figures being cited in the media by various organizations and by US lawmakers are just wild ass guesses. Professor William Byrnes took a stab at tracking down the origin of these numbers and they seem to have originated in magazine articles. Not one can cite a reliable methodology that might make these figures credible. In fact when the former IRS Comissioner was asked about them in 2009, he admitted:
“Not that I am aware of. I mean, estimating how much money that is overseas and not being paid to the government. As far as I am aware, there is no credible estimate because it is kind of a chicken and egg. It is over there and we have not found it, it is hard to estimate what is there. And all estimates that I have seen have not broken down criminal versus civil because, again, until we see the cases, it is hard to say.”
So FATCA is basically a fishing expedition. They have no idea how much money is out there in uncollected U.S. taxes.
FATCA is Already a Failure?: Reading the Senate report one is struck by their pessimism. They are saying that FATCA as it is being implemented isn't going to work:
"FATCA will not, in fact, solve the disclosure problem. FATCA’s implementing regulations have created multiple loopholes, with no statutory basis, in the law’s disclosure requirements (page 6).
In this Forbes article, Andrew Quinlan of the Center for Freedom and Prosperity agrees but he talks about something the report was completely silent about: reciprocity.
A Blame Game?: So here we have an extraterritorial U.S. law passed in 2010 to deal with a "problem" that no one can define with any precision, and for which no actual cost-benefit analysis was ever done.
Furthermore, even before implementation, FATCA already has had a number of serious consequences: it's costing countries all around the world an arm and a leg; it's making it very tough for US Persons abroad to have checking, savings and retirement accounts in their host/home countries; and it's generating expectations of information exchange reciprocity that everyone admits will be a very tough sell in the United States.
Now, four years later, the very people who passed the law are saying it's doomed and it's not their fault. It's those darn bureaucrats who are responsible if FATCA fails to find those tax evaders because they weakened FATCA when they wrote the regulations and negotiated those foreign agreements:
"They point out that the Swiss have signed an intergovernmental agreement that requires all Swiss banks to comply with FATCA’s disclosure requirements. But FATCA’s disclosure requirements have been limited and weakened by its implementing regulations, and may allow many U.S. taxpayers to continue to conceal their accounts in Switzerland and elsewhere." (Page 172)
This looks an awful lot like what the French call la chasse aux coupables (the hunt for the guilty).
The report implies that elements of the final regulations and those negotiated agreements do not have the support of U.S. lawmakers. That's a very troubling message to send to banks that desperately need those final regulations to be frozen, and to all the countries that have signed (or are about to sign) FATCA IGAs.
It's too soon to tell if FATCA will be a catastrophic failure, a limited success, or a rousing triumph, but it's not a good sign that U.S. politicians are already looking to assign responsibility for its shortcomings.
Success or failure, pro-FATCA or anti-FATCA, let's put the blame for the outcome of this legislation squarely where it belongs: the U.S. lawmakers who made the darkness.