With FATCA still facing opposition in some quarters, US Treasury seeks to counter ‘myths’

It is not often that a high-ranking officer of a United States cabinet department takes to public airwaves to correct what he says are “myths” about a particular law, especially one that has not even gone into effect. But that is what Robert Stack, the Department’s Deputy Assistant Secretary for International Tax Affairs did last week on September 20 in defense of the Foreign Account Tax Compliance Act, or FATCA, as it is now known around the world.

After explaining the steps his department and the Internal Revenue Service have taken in the run-up to implementation of the law in mid-2014, Stack stressed the underlying goal of the law to “help the IRS catch tax evaders.” He asserted that “despite the clear, positive benefits of FATCA, many continue to make misleading claims about its implementation and impact.”

He detailed seven “myths” followed by what he called “facts.” Here they are in essence.

Myth No. 1: FATCA is “overly costly and burdensome due to complex regulations” and it is “difficult to meet reporting requirements”

(Treasury) FACT: The IRS regulations are designed to “minimizes administrative burdens and related costs” and to “appropriately balance the scope of entities and accounts subject to FATCA with due diligence requirements, while… phasing in… obligations over several years.”

Myth No. 2:  “US citizens living overseas will become outcasts in the international financial world”

FACT: “FATCA withholding applies to the US investments of FFIs” without regard to US account holders. “Turning away known U.S. account holders will not enable an FFI to avoid FATCA.”  “19 countries have already announced a pilot project to exchange account information about each other’s residents ….  FATCA is quickly becoming the global standard for automatic information exchange and we expect the number of jurisdictions that choose to implement the same reporting procedures for all offshore accounts to continue to grow.”

Myth No. 3:  “Americans living abroad will give up their US citizenship because of (FATCA) liabilities and burdens”

FACT: “FATCA provisions impose no new obligations on US citizens living abroad.”  The withholding obligations fall on institutions making payments to FFIs, and the due diligence and reporting requirements fall on the FFIs….”

“Individuals that have used offshore accounts to evade tax obligations may rightly fear that FATCA will identify their illicit activities. Yet a decision to renounce U.S. citizenship would not relieve these individuals of prior U.S. tax obligations, and might well create additional U.S. tax obligations for certain citizens and long-term residents who give up citizenship or residency.”

Myth No. 4: “Countries are opposed to FATCA, in part because (it) could force foreign banks to violate laws in their… countries”

FACT: Implementing FATCA through IGAs is “respectful of the… laws and customs of partner jurisdictions (and) has contributed to the significant international interest in participating in FATCA compliance efforts.  The two FATCA model IGAs incorporate a two-pronged approach: under the first model, FFIs report to their respective governments who… relay that information to the IRS; or, under the second model, they report directly to the IRS to the extent the account holder consents or such reporting is otherwise legally permitted, supplemented by government-to-government cooperation to facilitate reporting on non-consenting accounts.  These… IGAs offer alternative frameworks for information sharing that abides by local laws.”

Treasury says it has signed 9 IGAs and reached 15 agreements, including with Malta, Bermuda and the Cayman Islands and is “engaged with over 70 additional countries and expects to conclude negotiations with several others soon.”

Myth No. 5: “FATCA will generate a backlash from foreign governments who view this as an overreach of US law”

FACT:  “FATCA has received considerable international support because most foreign governments recognize how effective FATCA, and in particular our intergovernmental approach, will be in detecting and combatting tax evaders.”   

Myth No. 6: “FATCA will unfairly expose FFIs to heavy penalties before they have the necessary mechanisms in place to comply”

FACT: “We recently announced a six-month extension to our withholding and account due diligence requirements because we recognize that FFIs need sufficient time to register for, understand, and implement their due diligence and reporting processes. Those requirements will now start on July 1, 2014.”

Myth No. 7: “FATCA aims to use foreign banks as an extension of the IRS”

FACT: “Individuals making this claim have confused reporting responsibilities with actual enforcement. The objective of FATCA is the reporting of foreign financial accounts held by US persons or certain entities with US owners.  This law… does not include an enforcement component for… FFIs.

For the full text of the Treasury Department response to what it describes as FATCA myths, visit: http://www.treasury.gov/connect/blog/Pages/Myth-vs-FATCA.aspx