Wednesday, 29 August 2012

FATCA & Multilateralism

I have suggested before that FATCA seems to me to be a bargaining chip to get other countries to negotiate on tax info exchange with the US.  The OECD seems to support this objective:
 The OECD welcomed today a new model international tax agreement designed to improve cross-border tax compliance and boost transparency.

Developed by the United States, France, Germany, Italy, Spain and the United Kingdom, the model allows the implementation of the Foreign Account Tax Compliance Act (FATCA) through automatic exchange between governments, reduces compliance costs for financial institutions and provides for reciprocity.   
...OECD Secretary-General Angel GurrĂ­a said:  “I warmly welcome the co-operative and multilateral approach on which the model agreement is based. We at the OECD have always stressed the need to combat offshore tax evasion while keeping compliance costs as low as possible. A proliferation of different systems is in nobody’s interest. We are happy to redouble our efforts in this area, working closely with interested countries and stakeholders to design global solutions to global problems to the benefit of governments and business around the world.” 

As a next step, the OECD will organise, in cooperation with the Business and Industry Advisory Committee to the OECD, a briefing session on the “Model Intergovernmental Agreement on Improving Tax Compliance and Implementing FATCA” at OECD headquarters in Paris in September 2012. The Organisation will then quickly advance to design common systems to reduce costs and increase benefits for governments and businesses alike. 
A major irony in the model agreement is that it's not at all clear to me that the US can furnish what it requires to be furnished by other countries, from the get go:

The information to be obtained and exchanged is:
(a) In the case of [FATCA Partner], with respect to each U.S. Reportable Account of each Reporting [FATCA Partner] Financial Institution: 
(i) the name, address, and U.S. TIN of each Specified U.S. Person that is an Account Holder of such account and, in the case of a Non-U.S. Entity that, after application of the due diligence procedures set forth in Annex I, is identified as having one or more Controlling Persons that is a Specified U.S. Person, the name, address, and U.S. TIN (if any) of such entity and each such Specified U.S. Person;...

This will be hard for the US to do in the face of anonymous incorporation, nor do I understand how a multilateral agreement can work if it cannot ensure reciprocity.  Nevertheless, it now begins to come clear that FATCA looks like a unilateral attempt to accomplish that which is not being  accomplished multilaterally through the usual (OECD) channels, namely, automatic info exchange with the US.  Steven Dean disagrees, though, and says the multilateralism envisioned here won't lead to more information being shared.  I hope he will weigh in and give his insights on this.

Meanwhile, one of FATCA's architects recently defended it in "A Report from the Front Lines."  Using imagery like "the front lines" gives the general idea about the tone: this is war.  He takes on the sovereignty issue as follows:
[T]he United States also has the sovereign right to protect its tax base by implementing a FATCA regime, and that if a Swiss FI does not want to be part of the regime, it is free to either avoid the U.S. financial system or incur a 30 percent withholding tax. Said differently, if tax haven and bank secrecy jurisdictions want to build their banking system to cater to tax evaders, the United States and other countries should not be prevented from taking counteractions.
He concludes with this on multilateralism:
Nevertheless, the United States needs to continue aggressively pursuing FATCA, especially in the multilateral context. Obtaining significant progress toward a multilateral FATCA regime could provide many benefits:
  • reducing discrimination against U.S. citizens living abroad; 
  • providing relatively standard customer due diligence procedures; 
  • reducing the number of investment options available to U.S. persons attempting to hide money overseas; and 
  • eliminating the complex passthrough payment rules. 
...In summary, the U.S. government has made significant progress toward addressing the use of offshore accounts to evade U.S. tax, but the war is not yet won. Much work still needs to be done. In addition to implementing FATCA in the United States, Treasury and the IRS should be pursuing an agreement among major countries as to the proper level of customer due diligence, and, ultimately, a multilateral FATCA regime involving several major countries. A multilateral approach will provide many benefits.
It is left to the reader to wonder, what benefits, and to whom?

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