A proposal to repeal FATCA
On Tuesday May 7th, Senator Rand Paul from Kentucky submitted a bill asking for the repeal of controversial parts of FATCA (The Foreign Account Tax Compliance Act). FATCA is a law that was designed during the recession to prevent Americans from storing undeclared assets overseas. According to Rand Paul, FATCA is not an efficient or legitimate way to combat tax-evasion; it does not follow the principle of State Sovereignty, and could devastate the U.S economy.
Why is FATCA controversial?
FATCA requires foreign financial institutions (FFIs) worldwide to deliver information on all U.S. clients to the U.S. Treasury, to prevent them from hiding their assets abroad in order to avoid taxation. If FFIs refuse to cooperate and deliver the information, FATCA stipulates that they must pay a 30% penalty on U.S.- derived revenues. According to Rand Paul, this violates the principle of State Sovereignty. In other words, a country like the U.S. should not be able to force other Sovereign nations to comply with their laws. The second problem, according to Rand Paul, is that FATCA forces countries like Switzerland to break their own laws and tradition of banking secrecy. Swiss banks are usually required to keep the information of their clients confidential, so suddenly revealing them would be a breach of the law and to the promise made to their clients. Finally, another big issue of FATCA is its cost to FFIs. FFIs often have to create new departments that are in charge only of the requirements made by FATCA. It is costly, and time consuming. This might lead to the FFIs refusing American clients, are choosing not to invest in the U.S anymore. This, according to Rand Paul, could have a devastating effect on the U.S economy.
For more information on FATCA, please see here.
The Impact of Senator Paul’s Bill
If Rand Paul’s bill came to pass, the penalty imposed on foreign firms would be removed, as well as the double-taxation agreement with Switzerland, Luxembourg, and Hungary. It would also block the current negotiations on double-imposition with Japan, Spain, Poland, and Chile.
Does Paul’s bill have a chance ?
With a Senate dominated by Democrats, the bill’s chances of passing are very slim. However, Senator Paul’s actions have had the short-term effect of slowing down and blocking the double-imposition process with Switzerland, Luxembourg, and Hungary, for over two years.
- Eisening, Christoph. "US Senator Will FATCA Abschaffen." NZZ 9 May 2013: n. pag. Neue Zürcher Zeitung.
- Cohn, Michael. "Rand Paul Introduces Bill to Repeal Parts of FATCA." Accounting Today. 08 May 2013. Web.
- Temple-West, Patrick. "Senator's Attack on Tax-dodge Law Gains Some Support." Reuters. N.p., 08 May 2013. Web.