FATCA delayed again, this time Treasury giving itself 6 months to get the house in order. Lesson: internationalizing a unilateral legal regime is really difficult.

Treasury issued a new Notice 2013-43 today, pushing the withholding deadline to July 1, 2014 (was January 1 2014), the portal opening to August 19, 2013 (was July 15), and the deadline to register as a FFI is now six months from when the portal opens, which I believe would be February 19, 2014 (was October 25, 2013) (but for some reason this date doesn't seem to be indicated in the Notice, instead it says "On or after January 1, 2014, each financial institution will be expected to finalize its registration information by logging into its account on the FATCA registration website, making any necessary additional changes, and submitting the information as final. Consistent with this 6-month extension, the IRS will not issue any GIINs in 2013. Instead it expects to begin issuing GIINs as registrations are finalized in 2014"). Accordingly, no GIINs will be issued in 2013, IRS "expects to begin issuing GIINs as registrations are finalized in 2014," with the first posting of the compliant FFI list by June 2, 2014.

All of this is going to require Treasury to amend the regulations and the model IGAs to adopt these rules, but taxpayers are advised they can rely on the Notice until that happens. Here is the explanation:

Comments have indicated that certain elements of the phased timeline for the implementation of FATCA present practical problems for both U.S. withholding agents and FFIs. In addition, while comments from FFIs overwhelmingly supported the development of IGAs as a solution to the legal conflicts that might otherwise impede compliance with FATCA and as a more effective and efficient way to implement cross-border tax information reporting, some comments noted that, in the short term, continued uncertainty about whether an IGA will be in effect in a particular jurisdiction hinders the ability of FFIs and withholding agents to complete due diligence and other implementation procedures. 

In consideration of these comments, and to allow for a more orderly implementation of FATCA, Treasury and the IRS intend to amend the final regulations to postpone by six months the start of FATCA withholding, and to make corresponding adjustments to various other time frames provided in the final regulations, as described in section III below.

There is also language about jurisdictions that have signed IGAs but have not yet ratified them according to their internal procedures for ratifying international agreements, in line with what the IRS agreed to in the Norway IGA, but notice that there are no hard deadlines here. Instead, FATCA partner jurisdictions get a "reasonable" period of time to get the IGAs through their respective legislative processes. I cannot see how a foreign jurisdiction would have any recourse to an unfavorable IRS determination that its internal ratification period is "unreasonable." I'd say that falls into a rather delicate area of diplomacy: I doubt the IRS will be eager to tell some other country its legislative procedures are too slow, sorry, you're off our whitelist. In any event:

A jurisdiction will be treated as having in effect an IGA if the jurisdiction is listed on the Treasury website as a jurisdiction that is treated as having an IGA in effect. In general, Treasury and the IRS intend to include on this list jurisdictions that have signed but have not yet brought into force an IGA. The list of jurisdictions that are treated as having an IGA in effect is available at the following address: http://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCAArchive.aspx. 

A financial institution resident in a jurisdiction that is treated as having an IGA in effect will be permitted to register on the FATCA registration website as a registered deemed-compliant FFI (which would include all reporting Model 1 FFIs) or PFFI (which would include all reporting Model 2 FFIs), as applicable. In addition, a financial institution may designate a branch located in such jurisdiction as not a limited branch. 

A jurisdiction may be removed from the list of jurisdictions that are treated as having an IGA in effect if the jurisdiction fails to perform the steps necessary to bring the IGA into force within a reasonable period of time. If a jurisdiction is removed from the list, financial institutions that are residents of that jurisdiction, and branches that are located in that jurisdiction, will no longer be entitled to the status that would be provided under the IGA, and must update their status on the FATCA registration website accordingly. 

More details in the link to the Notice. I have some questions about the various exceptions and wheretofores, including a general sense of confusion about which of the various procedures and penalties starts when, but I'll save these thoughts for another day.

Moral of the story: it's really, really difficult to get an international tax regime going on a unilateral basis. There is a story in this about the difference in making a unilateral rule first, and then repeatedly changing it to fix all the problems that inevitably arise, versus sitting around in international networks trying to make sure the rule will work first, before trying to implement it internationally. Empirical project for international law buffs!

Periodic Table of FATCA Acronyms

Cute and useful. Acronym overload is a common feature of just about all tax law it seems, and FATCA provides no respite, as this chart demonstrates:

At the link, you can click on any of the elements to get an explanation and links for further information.

EU Public Hearing on FATCA

Victoria Ferauge alerted me to the EU public hearing on FATCA coming up this Tuesday, 28 May from 3:30-5pm (Central European Std Time), which is 9:30 am Eastern Standard.  Victoria says:

Given my experience with the OECD, I wanted to be very sure this time around that "public" meant real people could attend. So I sent an email to MEP Sophie in't Veld (many thanks to Mark who passed along her email address).  This was her answer:
Dear Mrs Ferauge,
Thank you for your message. The meetings are public, so you can attend freely. The meeting will also be webstreamed via http://www.europarl.europa.eu/ep-live/en/committees/
With kind regards,
Sophie in 't Veld, MEP

It will be interesting to see how this goes and I very much look forward to Victoria's impressions.  By now FATCA's reach is beginning to be understood by a broader audience, but much (well-founded) fear and confusion remains due to the conflation of tax cheats hiding cash in complicated offshore schemes with Americans living abroad who are just trying to live their lives. I do hope that this public meeting will help clarify things.

Correcting the record 5 ways on the stories about Sen. Paul blocking "FATCA Treaties"

Just to clarify a few matters, now that I see the Hill has picked up on this idea that somehow Senator Rand Paul is blocking something the folks at Global Financial Integrity are calling "FATCA implementation treaties":

1) There is no such thing as a FATCA implementation treaty.  There are things called "intergovernmental agreements" (IGAs) which the US has been signing with some countries, which override FATCA, making the unilateral statute less onerous than it otherwise would be.  Anyone who is "pro" anti-evasion legislation (is there anyone who isn't?) can be wildly enthusiastic about FATCA, more or less enthusiastic about IGAs (perhaps less since they tend to water FATCA down), and basically uninterested in double tax conventions, which do almost nothing to combat tax evasion. Conversely, anyone who doesn't like FATCA can be enthusiastic about IGAs because they water down FATCA and leave more room for non-compliance, and wildly enthusiastic about double tax treaties, since they do nothing, FATCA-wise.

2)  Double tax conventions are not needed to implement FATCA.  FATCA is a domestic US statute which needs no implementing anything of any kind. It is already the law, it is already in force, and it is already in action.  So let us put to rest any notion that any international agreement could have any impact on the implementation of FATCA. FATCA is going to be difficult to enforce, no question about that. But it is existing law.  Its administrative and above all political difficulties are what have led Treasury--after FATCA was already law--to start thinking about asking for help.

3) Double tax conventions are not needed to implement IGAs.  The IGAs are Treasury's way of reducing the administrative and political burden Congress created for it with FATCA. An IGA would override the FATCA statute to make life easier for both the Treasury and foreign banks. But the IGAs are most certainly not treaties, in fact, just what exactly they are is muddled indeed.  Treasury has suggested that to the extent the US undertakes anything in these IGAs (which is precious little, at best), they are "interpretive" in nature that is, they interpret existing tax treaties. Hence perhaps some confusion: if you want an IGA which involves the US giving you anything back, Treasury is suggesting you may need a treaty for the IGA to "interpret." To be sure, the idea that IGAs are interpretive in nature is a stretch: IGAs are really just sole executive agreements. Treasury is not seeking any kind of congressional approval for them. Therefore no one in congress-Sen Paul or otherwise-can block them by holding up any kind of international agreement. The only way to block an IGA would be through a direct challenge to their legitimacy given that they violate the treaty power, which is supposed to be shared with the senate. Perversely, perhaps, if the IGAs were legitimate treaties, they could be blocked by Sen. Rand. But they are not, so they cannot be.

4) Switzerland already has a double tax treaty with the USA so even if the Switzerland IGA was the kind that theoretically needs a DTT to "interpret" (namely, a Model 1-style), the treaty needed is already in place, with language on information sharing ready to be "interpreted" by an IGA. However, Switzerland has not signed a Model 1 IGA with the US, it has signed a so-called "Model 2" IGA, which is non-reciprocal and binds the US to virtually no action whatsoever. It is for this reason, perhaps, that Treasury has already claimed that Model 2 agreements do not even need a treaty to interpret: that is, the Treasury has suggested that even non-treaty countries can get a Model 2 IGA.  So you never need a treaty with Switzerland to implement the proposed IGA.  Blocking the Swiss treaty may do a lot of things, but stopping the FATCA IGA is most certainly not one of them

5) Hungary and Luxembourg also already have DTTs in place. They are both old (Hungary-1979, Lux-1962) but each has info exchange language (Hungary-art 23, Lux art 28) so Treasury could again "interpret" these with an IGA, again by the logic that the IGAs are interpretive in nature. Of course, there is no IGA yet for Hungary that I know of, and Luxembourg is still mulling things over. If either goes with model 1, fine, DTT already in place. If they go with model 2, see above re Switzerland. Therefore there is no blocking of FATCA, an no blocking of FATCA IGAs, with respect to either of these countries, either.

Summary: IGAs are wholly unconnected to DTTs. The mistaken connection being made between these two completely unrelated legal instruments is understandable: it has been borne of Treasury's attempt to cast the IGAs as interpretive in nature, which at best is an ad hoc attempt to fix a legal impossibility of congress' own creation, without actually explaining their legal pedigree.  But DTTS are in no way necessary to the implementation of FATCA.

Recent academic scholarship on FATCA

It seems to me that academic attention to FATCA is on the rise. Here is a roundup of recent lectures & publications by law professors (and one student):

Steven Dean delivered a lecture at the University of Antwerp entitled FATCA's Unanswered Questions, description:

Like an asteroid passing close to Earth, the threat of FATCA's implementation has caused great anxiety and much activity. Despite the existence of important questions about FATCA's implementation, it has caused even some of the most reluctant foreign governments to embrace information reporting obligations. Tracing FATCA's origins offers useful insights regarding its likely effects. Even if it ultimately "misses" as a commitment device, FATCA will have a lasting impact on global tax administration.

Susan Morse published a reply to my article on the dubious legal pedigree of FATCA agreements, entitled Why FATCA Intergovermental Agreements Bind the U.S. Government, abstract:

Bilateral intergovernmental agreements (IGAs) relating to the Foreign Account Tax Compliance Act (FATCA) and entered into by the U.S. government reduce the reach of FATCA's withholding tax regime, including the reach of that regime as applied to non-U.S. taxpayers. The validity of these IGAs has been questioned. Yet IGAs have a strong case for binding status as valid congressional-executive agreements or treaty-based agreements. In addition, regardless of IGAs’ status as international agreements, they should bind the U.S. government as valid administrative guidance.

Frederic Behrens (law student) published Using a Sledgehammer to Crack a Nut: Why FATCA Will Not Stand, abstract:

The Foreign Account Tax Compliance Act (FATCA) became law in 2010 and is an important development in combatting income tax evasion. Under FATCA, American individual and corporate taxpayers must provide comprehensive information to the Internal Revenue Service (IRS) regarding foreign bank accounts. In addition, a more controversial part of FATCA requires foreign banks to report directly to the IRS certain information about financial accounts held by American taxpayers. 

These drastic changes in American tax policy are alarming to the international financial community. International banks are forced to implement expensive compliance programs to satisfy the information reporting requirements. An increasing number of foreign financial institutions will no longer want any involvement with American citizens or investments. Furthermore, Americans living abroad might be forced to denounce their American citizenship in order to gain access to insurance and basic banking options.   

In response to the unilateral imposition of FATCA, foreign governments and banks may lobby for its repeal. This Comment examines factors in the global movement to repeal FATCA and suggests several workable solutions that would be agreeable to the United States and foreign nations. Specifically, this Comment suggests how investment income withholding and increased IRS enforcement actions are a better solution to prevent income tax evasion.

And Itai Grinburg delivered a new paper at NYU, entitled Emerging Countries and the Taxation of Offshore Accounts, abstract:

A new international regime in which financial institutions function as cross-border tax intermediaries is emerging. The contours of that regime will be established during a narrow window of opportunity over the span of the next few years. The resulting regime will have especially important consequences for emerging countries. A uniform, multilateral automatic information exchange system would improve both these jurisdictions’ ability to tax the offshore accounts of their residents and their capacity to tax certain domestic-source income from capital. 

Interestingly, multinational financial institutions’ and emerging countries’ concerns with the emerging international regime are largely aligned. As a result, they may find that they are improbable allies in the battle over taxing offshore accounts. With the G-20 as an agenda-setter and international financial law as the model, a governance structure for an automatic information exchange regime that could be useful to emerging countries’ tax administrations and lower multinational financial institutions’ compliance costs could materialize. The paper explores the necessary architecture, as well as steps emerging countries may take to help that architecture develop.

Many different perspectives emerging. Have I missed any recent scholarship? Please do bring it to my attention if so.

Thoughts on the "you first, no you first" provision in Norway's FATCA agreement with the US Treasury

Norway signed an IGA with the US Treasury on April 15.  I blacklined the Norway agreement against the Model 1 FATCA, (you can download the comparison here) and note that some of the regular features appear, including deemed-compliance status for pension funds and "local" banks* but want to address in this post what I'll call the "you first, no you first" provision in Article 4, paragraph 6.

Some FATCA watchers were surprised to see this paragraph, and I admit I had not noticed it before so I assumed it was new--until I blacklined it and found that no, that paragraph is in the Model 1 Agreement (however it is not in the IGAs with Mexico or the UK), and the Model language is identical to that in the Norway agreement.

In any event, having now read this Art. 4 paragraph 6 more closely, I notice there is actually a good bit of maneuvering going on here. Here is the language:

6. Coordination of Timing. 

Notwithstanding paragraphs 3 and 5 of Article 3:

a) Norway shall not be obligated to obtain and exchange information with respect to a calendar year that is prior to the calendar year with respect to which similar information is required to be reported to the IRS by participating FFIs pursuant to relevant U.S. Treasury regulations;
b) Norway shall not be obligated to begin exchanging information prior to the date by which participating FFIs are required to report similar information to the IRS under relevant U.S. Treasury regulations;
c) the United States shall not be obligated to obtain and exchange information with respect to a calendar year that is prior to the first calendar year with respect to which Norway is required to obtain and exchange information; and
d) the United States shall not be obligated to begin exchanging information prior to the date by which Norway is required to begin exchanging information.

This is actually not at all easy to read (on purpose? One always wonders).  But for sure this does not say, as some readers initially thought, that Norway can wait to give info to the IRS until the IRS begins to give info to Norway. In fact, it rather says quite the opposite. Nor, as I thought when I first read it, does it say that Norway need not exchange until Treasury begins to require equivalent information be reported on Norwegian account holders by US FIs to the IRS.

Instead, it says very simply that Norway need not exchange information with the IRS before the US Treasury regulations require FFIs to begin reporting to the IRS, and the IRS will not exchange info with Norway before Norway starts exchanging. All this use of negatives is confusing so let me try to put it in positive terms: it in effect says that Norway will start giving the IRS info once the IRS requires FFIs to begin reporting per the Treasury regs. Notice that Treasury makes no affirmative commitment on the part of the IRS to actually exchange thereafter--only that in any case it will not exchange before Norway does. It implies that it will be obligated to automatic exchange thereafter, but I am not sure even that is so clear.

The Mexico IGA--the only agreement that is technically in force right now--should provide ample proof that the Treasury has not committed to actual automatic exchange of information with its IGA partners (regardless of para. 6), and certainly that the Treasury is not going to go first. On the contrary, Treasury has only said that it will begin requiring US banks to provide the IRS with information on IGA-country account holders, which could be exchanged with such IGA partners if Treasury determines that such sharing would be appropriate. According to the Treasury, "Even when [an info exchange] agreement exists, the IRS is not compelled to exchange information… if there is concern regarding the use of the information or other factors exist that would make exchange inappropriate.”

No word on what those other factors might be, so read this as a broad grant of discretion to the Treasury, with no accountability required toward the IGA partner.

Mexico, it appears so far, has not yet been given the green light, so I can only assume that the status quo right now is Mexico dutifully turning over (on a monthly basis I believe) IGA-compliant information, while the IRS provides Mexico nothing in return. You might like to see what the American Banking Association thinks about this status quo. I think it is safe to say that the Florida and Texas Bankers Associations are determined to at minimum delay reciprocal automatic information exchange as long as possible, if they cannot eliminate it all together.

Now, if I have these facts incorrect and the IRS is actually exchanging information with Mexico under the IGA, I hope that someone will please correct me right away because this is tremendously important--as I have suggested before, the information Mexico could get from the IRS under such an arrangement could be explosive in terms of exposing the volume and direction of tax evasion as between these two countries (not that the public will get much or any information on these things--on the contrary we most likely will learn absolutely nothing, more's the pity).

One might say the USA won't similarly refuse to share information with Norway as such behavior smacks as bad faith, and countries have a positive duty to on the contrary act in good faith with respect to "international agreements". Moreover, it strains credulity to think that Treasury would start collecting information on Norwegian account holders from US banks, without actually planning to share it.

To that I would counter, presumably Norway knows exactly what it got in this deal: the same promises as have come before.

This is consistent with the rest of the IGA, which suffers from the same lack of reciprocity that in my view belies the character of these instruments as international agreements at all, even beyond their likely constitutional violation in the USA.  I recently wrote an article about the lack of reciprocity in the IGAs, why I think that is so problematic in terms of creating a perverse market advantage for the USA to facilitate tax evasion, and why there is not much reason for being optimistic that the necessary sea change will occur to make FATCA a viable multilateral regime with equal applicability to the world's largest destination for foreign capital. You can read that article here, and as alway I welcome feedback, especially to correct any of my misunderstandings.

To sum up, in my view the "you first, no you first" provision adds nothing in terms of greater reciprocity in the Norway IGA, while the same procedural and substantive defects we have already seen continue unabated.

* I also note a new conditionality to the local bank exception, in Annex I Part II.A.(e):

"provided thatNorway provides information on an automatic basis to the relevant Member State;"

This seems to mean that until Norway is actually exchanging info, its local banks will not be deemed compliant but will be withheld upon once the "you first" rule kicks in (i.e., once FFIs must begin reporting per Treasury regs).  

The local bank exception is a get-out-of-FATCA-free card for banks whose account holders--including US citizens--mostly live in the country. I've been told the provision is meant to help Americans living abroad whose local banks are dropping them in the (mistaken) hopes that this will relieve the FI of FATCA scrutiny. I have a lot of trouble with this local bank exception in terms of what the US appears to be trying to do with it, tempering citizenship-based taxation with an escape hatch that potentially encourages and even invited casual noncompliance, but that's a conversation for another day.

My intrigue with the new language in the Annex here is that I'm not sure why this condition applies only to local banks, and not other deemed compliant FIs. Those who think the FATCA regime is now deliberately aimed not at catching HNW Americans living in the USA and stashing cash offshore (few of whom hold large amounts of cash in accounts with their own names attached, as Lee Sheppard has repeatedly pointed out) but instead at imposing upon US citizens living abroad with their middle class wage earnings and their lack of effective representation in Washington, could have a field day with this provision. 

FATCA reciprocity in Obama 2014 Budget?

One line in the budget itself:

Provide for reciprocal reporting of
information in connection with the
implementation of FATCA ................... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .

The blanks indicate that the measure is deemed to have no impact, positive or negative, on the deficit.

This explanation in the Analytical Perspectives:

Provide for reciprocal reporting of information in connection with the implementation of the Foreign Account Tax Compliance Act (FATCA).—In many cases, foreign law would prevent foreign financial institutions from complying with the FATCA provisions of the Hiring Incentives to Restore Employment Act of 2010 by reporting to the IRS information about U.S. accounts. Such legal impediments can be addressed through intergovernmental agreements under which the foreign government agrees to provide the information required by FATCA to the IRS.  Requiring U.S. financial institutions to report similar information to the IRS with respect to nonresident accounts would facilitate such intergovernmental cooperation by enabling the IRS to reciprocate in appropriate circumstances by exchanging similar information with cooperative foreign governments to support their efforts to address tax evasion by their residents.  The proposal would provide the Secretary of the Treasury with authority to prescribe regulations that would require reporting of information with respect to nonresident alien individuals, entities that are not U.S. persons, and certain U.S. entities held in substantial part by non-U.S. owners, including information regarding account balances and payments made with respect to accounts held by such persons and entities. 

But nothing further from the Treasury in its own explanation of the budget.

So we will just have to wait and see, some more. Note that even this brief move forward highlights the aspiration involved in referring to any currently configured IGA as "reciprocal."

France ups the ante for EU tax evasion

Cahuzac's denials and ultimate admission about hiding money offshore while serving as the anti-evasion officer-in-chief is very embarrassing for France, and so it should be no surprise to see the rhetoric heat up as new allegations surface about his attempts to move the money around in an ultimately futile attempt at subterfuge. From AFP:

J'ai dit quoi?

France said Sunday [ed: France is a country and cannot speak. It is not so difficult to write "French leaders said", and it is ever so much less distracting.]  it was looking to tighten Europe-wide measures against tax evasion as it scrambles to contain a fraud scandal that has rocked President Francois Hollande's government.

...Finance Minister Pierre Moscovici announced that France would seek to reinforce the exchange of banking information throughout Europe, based on a US ruling in place since 2010 that seeks to fight offshore tax evasion.

Well, the "rule" may have been in place but let us recall that it is not in fact yet in force...three years later, we're still working out the kinks over here, and there are many, many kinks.

More:

"I propose that there be an automatic exchange of information, a European FATCA," Moscovici said on Europe 1 radio.

Hollande's government has been shaken by the scandal, which erupted Tuesday after Cahuzac -- once in charge of tackling tax evasion -- admitted to investigators that he had a foreign account containing some 600,000 euros ($770,000). 

...Critics have been quick to round on Hollande and his ministers, accusing them of either trying to cover up the scandal or of mismanagement for having believed Cahuzac's denials.

...Hollande has tried to contain the fall-out from the scandal, saying he was unaware of the account and announcing Wednesday that a new law would be submitted within weeks that will establish greater control over ministers' wealth. 

The law would also ban any elected representative found guilty of tax fraud or corruption from holding any form of public office.

Query whether there would be enough people left to run the world if every country made this same pledge.

To understand why citizenship-based taxation is objectionable, consider the STEM Jobs Act of 2012

Victoria Ferauge explains in as clear a way as may be possible why it is important to understand what people mean when they talk about citizenship-based taxation, and why the US effort to impose it with the big stick of FATCA is so objectionable to Americans living in other countries (also known as "immigrants" in those countries). She makes a number of points but I wanted to highlight one here:

In the [dialectic on Americans living abroad, which equates expatriation with tax evasion] it seems not to have occurred to the American public or its lawmakers that the people they are trying to attract [through immigration policies aimed at high-skilled workers] are the product of other countries' investments in producing a well-educated populace. 

In light of that, consider what the Heritage Foundation says about the STEM Jobs Act of 2012:

American businesses are struggling to fill high-skilled employment opportunities. STEM jobs grew at over three times the pace of non-STEM jobs between 2000 and 2010 and are expected to grow almost twice as fast by 2018. Business groups have spent years urging Congress to reform the visa system in order to fill these empty positions.

Enhancing the ability of high-skilled workers to enter the U.S. would be an asset to the nation’s economy as well as its indebted government. 

In case the instrumentalist nature of our interest in immigrants is not clear, the point is we're going to make these foreign-born, foreign-raised, foreign-educated, now high-skilled, highly-paid workers a permanent part of the American taxpaying public, which can increasingly be defined as the American wage-earning public. One may be forgiven, perhaps, for juxtaposing this deep thirst for foreign talent against America's ongoing disinvestment in its own social infrastructure, including public education (also helped along by the Heritage Foundation).

Victoria's post thus seems to me to contain the contours for constructing the normative case for taxing humans. There is much to be done on this topic, but it seems clear that the practice of admitting immigrants at all, let alone actively seeking highly-skilled ones, demonstrates that inbound human mobility is a social good that states support; that inbound human mobility (perhaps especially of the high-skilled kind) may be the product of rather intense social investment by some other country; and that conversely taxing on the basis of citizenship regardless of residence is a means of preventing outbound human mobility and so runs strictly counter to the overall good of human mobility while also being hostile to the aims of other countries also seeking inbound labour.

The US has long objected to onerous fiscal controls on the capital it sends across borders, so it seems particularly difficult to understand the ongoing support for placing onerous fiscal controls on its outbound labour supply. Contextualize that observation within the story of the shift of taxation from capital to labour over the past 50 years, however, and a pragmatic explanation is easily ascertained. But pragmatism does not make the normative case. In fact, it violates the conventionally-understood major normative factors for assessing taxation--efficiency, administrability, and fairness--because it introduces an insurmountable amount of arbitrariness. This topic deserves much more thinking than has been allocated to it by tax policy observers, including myself.

There is much more at the link, please do go and read Victoria's whole post.

IRS brushes aside the constitution to make way for FATCA

In a Tax Notes International article [gated] today, Lee Sheppard discusses remarks about FATCA by Jesse Eggert, Treasury associate international tax counsel, at a March 1 IFA meeting. The most troubling aspect for me comes in the last part, when Sheppard describes a Q&A over the intergovernmental agreements and the IRS rep casually dismisses any constraints on the Treasury's attempt to bind the US with these documents as a matter of international law. There are two main questions here and both answers strike me as deeply problematic. First, there is this:

Can there be an IGA with a country that has no treaty or tax information exchange agreement? Yes, Eggert responded. It would have to be a Model II or nonreciprocal Model I . Amendments would have to be made to add information protections and assistance provisions.

With respect, this does not accord with what we have been given to understand so far about these IGAs. One need only read the preambles to the IGA models and signed agreements and consider the treaty power briefly to see that there is a very large legal difficulty here. As I have said before (and have a feeling I will be saying repeatedly), the Executive Branch cannot simply bind the US to any agreement it wants to without doing violence to a constitutional process that has been expressly laid out and subject to decades of analysis and debate by the country's most preeminent legal minds.

This is why the IRS has been very quietly implying that the IGAs interpret existing treaties. I don't agree on the merits that this could possibly be true, but the IRS needs it to be true because if it is not true, the only alternative is that the IGAs are sole executive agreements entered into by the executive branch with no congressional oversight whatsoever. That puts them on the most precarious legal ground in terms of foreign policy power in the US, and by this statement Eggert pushes them closer in that direction.

Second, there is this:

Does Treasury have authority to make IGAs? Eggert argued that IGAs are within Treasury's statutory authority to make FATCA regulations (section 1471(b)). Treasury and IGA signatories are discussing how to make domestic implementing laws consistent.

Again with all due respect, this just simply is not true as a matter of US law. The executive branch does not have the power to authorize itself to enter into treaties without congressional oversight. It is the constitution that provides the treaty power, and Congress is expressly involved. Congress could have granted the executive specific authority in this case, as it has done in other cases, but it clearly did not do so here. It is not clear what Eggert means by "making domestic implementing laws consistent." Maybe that refers to the domestic laws of treaty partner countries, which will have to change their data privacy laws to accomodate the information sought by the IRS. If so, that has nothing to do with the US. From what we have seen so far, it seems clear that the IRS is treating the IGAs as operational once the other country so indicates it is operational from their perspective (cf Mexico).

Arguing that the authority is implied within Congress' mandate to Treasury to issue regulations under 1471 is blowing a hole through the treaty power. It argues that Congress empowers the Executive Branch with treaty making authority with each and every directive to enact regulations. It makes a farce of the congressional executive agreement process that has been begrudgingly accepted as authentic by most constitutional scholars today. And never mind the old standard, the Article II treaty power. By this logic if the President wants an international agreement--any international agreement of any kind--he never needs to consult the Senate again, he can simply find some reference by the Congress directing his regulators to regulate. If Eggert is right in this assessment, it is not a stretch to see this as the beginning of the end of the Article II treaty ratification process in the United States. In other words if this works, then it's anything goes when it comes to the Executive Branch overriding domestic law with an international agreement.

Finally, I note that one other Q&A Sheppard mentions is also intriguing, though on the surface it seemed uncontroversial:

Existing IGAs will be interpreted to say that countries may choose the definition of an item in the final regulations which came later in time. Treasury will not amend IGAs wholesale when regulations change, Eggert explained.

This may seem benign--it provides flexibility despite the apparently rigid parameters of the documents (which are treaties, after all, and not so easy to just unilaterally alter at whim). But this is in fact very interesting as a legal matter because it quietly moves the world a little closer to yet another US tradition that many people in other countries find odd if not outright incompatible with international law, namely, the treatment of treaties as equal in legal status to other laws, including statutes and case law, so that treaties can be overridden at any time by a new statute or judicial decision. But it goes a further step to include regulations within that overriding scope--where they might not so clearly belong even under US law.

In other words, the IRS is saying that not only does the "last in time" rule apply to IGAs (as they would to any US international agreement), but we'll apply the last in time rule to other countries too (even if under their own laws the treaty would override later-enacted domestic laws); moreover the last-in-time rule is now extended to treasury regulations (a unilateral law that will be used to "interpret" a bilateral agreement, yet another controversial treaty interpretation position), and finally we are going to make it the treaty partner's choice to pick among the regimes to get the best result (which treats treaty partners not as negotiators in a bilateral agreement but rather in the same way as taxpayers subject to an elective regime).

It is getting progressively more difficult to keep up with the sheer volume of violations of laws and norms being undertaken by the IRS in order to get FATCA to work. It is rather disheartening (in the sense of being a scholar who studies legal process as though it matters) to realize that to many or most people involved in this project, all of these violations are just technicalities and semantics getting in the way of a result everyone wants.

The Dubious Legal Pedigree of FATCA intergovernmental agreements (and why it matters)

My latest column in Tax Analysts' Tax Notes International is here.  I argue that the IGAs have a dubious legal pedigree because they are not treaties, not congressionally-authorized executive agreements, and not interpretations of existing agreements; therefore they are sole executive agreements--entered into by the executive branch with no authorization or oversight from Congress. This puts them on very shaky ground in terms of the constitutional process for binding the US internationally, and I argue that this is both unhelpful to other governments as a practical matter (IGAs override the statute, so if they fail, then what) and an unnecessary muddling of the rule of law, which should make other governments wary (if you have a process in place to bind the US under international law, why aren't you using it).

US fights EU on data privacy law, says EU should respect US right to regulate

For the life of me I cannot understand the FT's headline, which reads "Brussels fights US data privacy push."  No, it's the US sending a team of lobbyists to fight against EU regulation--the penultimate sentence of the article even labels this "aggressive lobbying."

Why are the US lobby troops going into battle? Because the EU seeks to impose a fine of 2% of global annual revenues for any company, anywhere in the world, that violates the data rights accorded to EU citizens. US lobbyists and a sympathetic administration seem all too eager to push other countries to ease up on their regulatory burdens on US companies, so it is not surprising to see them in full force against the EU parliament here. But this effort is especially rich given that it comes at the very moment that the US is seeking to impose a fine of 30% on any company, anywhere in the word, that violates its own data sharing requirements. From the story:

Viviane Reding, EU commissioner for justice, said that the EU was determined to respond decisively to any attempts by US lobbyists – many working for large tech groups such as Google and Facebook – to curb the EU data protection law.

“Data protection is a fundamental right in Europe which is clearly enshrined in the Charter of Fundamental Rights. Whilst this may not be the case in other parts of the world, one thing is clear: if companies want to tap into the European market they have to apply European standards.” 

Ms Reding’s firm approach is likely to spark a diplomatic battle between Brussels and Washington, which has actively been trying to water down the EU’s tough new privacy legislation by handing US companies a de facto exemption from it. 

“Europe, the United States and other democracies around the world share many of the same values,” said William Kennard, US ambassador to the EU at a conference on European data protection and privacy. “We need to accept that each of these democracies has the right to choose whatever legal framework is suited best for them to defend and protect those values.”

Translation: respect our sovereign authority to write the laws we want to write to regulate our companies; don't use sanctions or threat of sanctions to force our companies to abide by your laws.  Or, do that to other countries, but give us an exemption because we're good guys that share your values.  Further:

US tech companies are trying to shield themselves from the legislation as they argue that it would be unfair for them to be subject to EU laws that are too stringent and could result in expensive administrative burdens and hefty fines for errant companies.

So here we have a US ambassador stating the cause for US companies that complain of the "unfairness" of stringent and expensive compliance costs backed by hefty penalties for noncompliance. The EU's position is, we are trying to protect our people wherever they go in the global market. The world is our jurisdiction to the extent it impacts the people we call "ours," and we aim to protect our people.

Are we not coming to a place where it is becoming obvious that global markets cannot peacefully co-exist with autonomous states?  Not one world government at all but instead an impenetrable mass of overlapping and conflicting regulatory states, a venn diagram of massive and chaotic proportions, and no possible way for anyone to comply with all of it.  Stock tip: invest in data compliance companies, they might be the most important drivers of the global economy in the near future.

OECD "public briefing" --update

***updated**

A development on the public briefing. After being turned away, Victoria Ferauge has now been given the green light to attend tomorrow's FATCA/TRACE briefing on behalf of American Citizens Abroad. I am very glad to see this resolution. It worries me when international bodies ostensibly working on behalf of society try to manage which sectors of society count when it comes to policymaking.  Access to meetings is the barest form of participation in such matters.  I look forward to hearing from Ms. Ferauge regarding what she hears and sees at the meeting, and am glad that she will be able to attend with only one day's notice.  (be sure to note if you are asked for your passport to gain entry).

----

Last Thursday I mentioned that the OECD had advertised a "public meeting" on their website about TRACE and FATCA, and I said:

...you can also attend in person for 100EUR if you are a financial institution, a practioner, or a journalist, according to the information.  Though it is not stated, I will simply assume that non-interested observers, such as academics, NGO reps, etc., are also warmly invited.  

I am sorry to have to report that this is apparently incorrect, at least, when one NGO (American Citizens Abroad) tried to send a rep, she was rebuffed because space is running out and "government and business have priority."

Frankly, this is outrageous.  The OECD has been a club for the revolving door crowd for far too long.  When I have criticized the absence of NGOs and other disinterested observers at the OECD I am told  they are represented by government. If that ever was the case, I think we can safely say it is not the case now. The OECD cannot simply isolate anyone who doesn't stand to benefit from government-big business collusion forever. Eventually it must lose its ability to state with a straight face that it works on behalf of the peoples of its member states.

Message to OECD therefore: do not call it a public meeting if it is not a public meeting, if it is only another forum for government bureaucrats and business leaders, call that what it is: an international lobbying session.

Now, if I am wrong and there is an NGO or any other disinterested, non-business person who is going to be allowed to go to this "public meeting" at which what is going to be discussed by bureaucrats and busienss leaders is how governments will be monitoring and taxing human taxpayers who constitute the peoples represented by the member states, then please, please someone let me know.

Obama admin taking the high road on FATCA reciprocity?

I have predicted that real FATCA reciprocity would not fly in the US once people began to understand what the details entailed, but I would like to be wrong about that, and I have argued that the best course forward for FATCA is real reciprocity coupled with adherence to residence-based taxation. Here's a sign from the Chicago Tribune that I could get at least one of my wishes:

Foreigners' accounts in U.S. banks eyed in tax crackdown

The Obama administration may soon ask Congress for the power to require more disclosure by U.S. banks of information about foreign clients' accounts to those clients' home governments, as part of a crackdown on tax evasion, sources said on Monday. 

In a move facing resistance from some in the U.S. banking industry, two tax industry sources said the administration was considering asking Congress in an upcoming White House budget proposal for the authority to require more disclosure from U.S. banks. 

...At the heart of FATCA is a law requiring more disclosure by non-U.S. banks of information about Americans' accounts to the Internal Revenue Service, with the goal of exposing Americans' efforts to dodge U.S. taxes through secret offshore accounts. 

As Treasury has implemented FATCA, some countries - possibly including France, Germany and China - were said to be driving a hard bargain. They have been saying that if their banks have to tell the IRS about Americans' secret accounts, then U.S. banks should have to reciprocate by disclosing more information about the U.S. accounts of French, German and Chinese nationals. 

...China has been publicly dismissive of FATCA, but it is talking with U.S. officials behind the scenes, sources said.

...France and Germany "have been asking for something more like full reciprocity," said Jonathan Jackel, a lawyer with the law firm of Burt Staples & Maner LLP in Washington, D.C. 

The story says that "The IRS this year started disclosing to some foreign governments information about bank interest payments earned by their citizens with U.S. bank accounts."--but I am not sure that that is true, given that the only country currently on the list for automatic info sharing on portfolio interest is Canada-and Canada was already on that list anyway.


The story quotes Itai Grinberg, who has to be the foremost expert on the legislation and really ought to be listened to on the underlying principles:

"The United States should be moving toward full reciprocity," said Georgetown Law School Professor Itai Grinberg, a former Treasury official, adding it would be "deeply hypocritical" of the United States to ask for U.S. taxpayer information "without offering some kind of reciprocity."

Progress, perhaps. But this is America, so here comes a lawsuit:

The Texas Bankers Association is considering a lawsuit against the government to stop accountholder information sharing with Mexico, said Eric Sandberg, the group's president.

Why, what s the problem?  Well, you see, it's financial privacy.

"We are concerned with Latin American countries like Mexico," said Fran Mordi, senior tax counsel at the American Bankers Association. "In the past, U.S. banks didn't report interest payments to non-resident aliens ... IRS is now saying you have to report that."

Translate how you will. I think it's a clear illustration of the state at war with itself over how to gain the maximum advantage from a combination of cooperation and competition with other states on taxation. Information sharing is going to benefit the US more in terms of dollars in the economy if it is one-way street that catches US shirkers but doesn't prevent taking advantage of other countries' ignorance about the location of their own taxpayers' resources. I think the mercenary state will prevail in the end--cooperate in principle, defect in practice--but I am very much hoping to be wrong.

A 2-paragraph summary of the FATCA regs?

From Tax Analysts today [gated], a reader writes in with a 2-paragraph "summary" of the FATCA regs. Excerpt:

In our attempt to ferret out U.S. tax dodgers with foreign accounts, we are using the only leverage we have ... 30 percent withholding on all U.S.-source payments to foreign companies unless they fess up and disclose all of their U.S. beneficiaries. Further, we are going to coerce foreign countries [into] ... facilitating this disclosure by threatening to impose our Byzantine regulations on their local financial institutions if they don't.  

We realize that the net result will be that tax dodgers with foreign accounts will simply move their accounts to banks in countries that don't enter into Disclosure Treaties and that don't have U.S.-source income, so the net result will be to impose our massively complex regulations only on legitimate U.S. and foreign taxpayers. We recognize that this result will drastically reduce foreign investment in the United States in a time when it is desperately needed and will add untold complexity to a world of increasing globalization, but we had to do something in response to news articles on some unreported foreign accounts. 

Really, more in the way of observation than interpretation, but in any event it's a finger on a certain pulse.

OECD public briefing on TRACE and FATCA: Feb 12

The OECD will hold a public meeting on TRACE and FATCA in Paris on February 12, with three IRS officials on hand to discuss FATCA and a senior tax guy at HSBC to update on the OECD's TRACE project.  Really? A senior tax guy at HSBC is going to tell us about how the OECD is going to prevent tax crimes and money laundering?  Wait, is this like that movie where they hired an accomplished thief to test the security system and explain everything that's wrong with it?  In any event, info:

The OECD and the Business and Industry Advisory Committee (BIAC) to the OECD will host a public briefing session on TRACE and FATCA at the OECD Conference Centre in Paris on 12 February. 

...Officials from the US Treasury and FATCA partner countries will give an update on the progress made on the intergovernmental agreements. 

You must send your questions in advance:

Participants will be given an opportunity to ask questions by completing the question form and sending it to the OECD Secretariat (icaevents@oecd.org) by Friday 8 February...

 But you can also attend in person for 100EUR if you are a financial institution, a practioner, or a journalist, according to the information.  Though it is not stated, I will simply assume that non-interested observers, such as academics, NGO reps, etc., are also warmly invited.  I am very sorry I won't be able to attend myself, but if anyone who reads this does plan to attend, I would dearly appreciate hearing from you.

What's FBAR got to do, got to do with it

Everything, I am guessing. Tina will give up her US citizenship now that she has attained Swiss citizenship.  Reason given: to "clarify her situation." John Nolte says "She's 73 years-old, her longtime partner lives overseas, and as far as I know she's not in any way making a political statement." He seems a bit puzzled about her decision to give up her status, and he welcomes her back anytime.

Well said. So why is she giving up her citizenship?  Short of making a political statement, I can think of only one good reason: America's newfound vigor for enforcing citizenship-based taxation, and all of the surveillance and form-filling that entails.  Just consider that giving up citizenship is not a simple matter of mailing in your passport. It can be a complex and time- and resource-consuming process which involves enhanced scrutiny and fees for those with high net worth, who are viewed as attempting to flee the tax jurisdiction.

The US has always had citizenship based taxation on the books, but it wasn't truly enforced until FBAR came under IRS authority and FATCA emerged as its enforcement mechanism in 2010.  Now those who have not been compliant will be "rooted out" (former IRS Commissioner Shulman's description of FATCA) with ongoing monitoring, and hefty fines for failure to file. Those who have been compliant will go on to face a regime that is increasingly byzantine, with new forms and requirement seemingly being piled on all the time, in a situation that is becoming very lucrative for tax return preparers and the compliance industry in general--just google FATCA compliance officer job posting and you will get the idea.  Of course, the regime is meant to catch Americans hiding their cash offshore: a laudable goal especially in light of so many high profile cases, many prominently featuring Switzerland.

So the question is whether Tina Turner is an "American" and if she, with her Swiss bank accounts, is "hiding offshore." This raises a series of unanswered questions about the relationship between the individual and the state, none of which, I think, are easily answered. These include, to which country does Tina belong, if she has dual citizenship?  Is this a first come, first served world, so she belongs to the US in perpetuity, based on her birth in Tennessee, no matter where she lives out her life?  Can she choose to belong to another country, or only if she is willing to pay the cost of her continued US status in the form of ongoing compliance with US tax law?  Is Tina going to be allowed to leave the US jurisdiction only on the condition that she renounces any right to come back?  What financial restrictions should a state place on people--especially wealthy ones--who want to move to other jurisdictions?

As long as Tina holds on to her citizenship, even if she is a dual citizen living in another country, the answer to the first question is that she is now and will ever be American. And as long as she has any accounts anywhere in the world outside of the US, the answer to the second is "guilty unless proven innocent on an annual basis." None of the other questions are answerable in law: all are a matter of opinion and, more than anything else, geo-political power.

I am sure that Tina's expatriation will be viewed by many as a response to the high US tax rate, or a betrayal of her US roots, or both. But it is likely neither.  As a Swiss citizen resident in Switzerland, Tina's worldwide income is subject to income tax (federal, cantonal, and municipal), wealth taxes, VAT, etc., and we can only speculate about how much tax she may be asked to pay in the US after credits, exemptions etc. as a US citizen living abroad.  It could very well be zero or close to zero.  So it is seems more likely this is about the hassle of filing a thicket of tax forms, year after year, despite owing little or no tax to the US, and stiff penalties for even "non-willful" infractions, including mistakes.  And it could be about having to do all of that because Americans living abroad are viewed as likely criminals because they have offshore bank accounts.  

If Tina has been tax compliant all these years, she may just be exhausted with the effort; if not, she may see many reasons to cut ties by going the drastic step of irrevocable renouncement.

I would very much like to know if there is some other reason to give up her US citizenship. "Clarifying" one's situation seems just abstract enough to cover the hassle of dealing with US tax compliance.

Paper: Putting the Reign Back in Sovereign

I've just posted a draft of my paper, "Putting the Reign Back in Sovereign: Advice for the Second Obama Administration," which I presented at Pepperdine last week. Abstract:

In its first term, the Obama administration enacted two pieces of legislation, each designed to protect an increasingly vulnerable income tax base, and each of which had the potential to set a new and unprecedented course for no less than the regulation of the global economy by the nation-state. The first, the Foreign Account Tax Compliance Act (FATCA), sought to end global tax evasion through tax havens.  The second, a little-noticed two-page addendum to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), sought to end the contribution of American multinationals to corruption in governance by codifying the transparency principles of the global Extractive Industries Transparency Initiative (EITI).  Both of these reforms reasserted a role for the nation state in regulating people and resources. But neither has yet to fulfil its potential. First, each has raised difficult questions about what the state can and cannot do to enforce disclosure and compliance on a global basis; failing to answer these questions is impeding implementation and aggravating an already-flagging taxpayer morale. Second, neither is broad enough: FATCA should be truly reciprocal and EITI should expand beyond the extractive industries. By acknowledging and responding in a principled way to the obstacles that limit their effectiveness, a second Obama administration could take significant steps to bring each piece of legislation to its potential, while ensuring that its scope focuses on its intended target in each case. This article outlines how these proposals could be accomplished and makes the case that they should be attempted.

I would be happy to have comments.  And in case it is of interest, here is a link to my powerpoint from the presentation as well (I don't know how to embed that here); you can actually watch the entire conference video here (my presentation was second to last).

Why FATCA is a Tax Treaty Override

I've been asked to explain comments I made in a recent talk about FATCA, when I said that this regime constitutes a tax treaty override, and that I don't think that IGAs are a valid fix as a matter of law. Here is my reasoning. I will use the US-Canada tax treaty as an example, but the override applies to all US tax treaties currently in force.

This is a lengthy post so let me preface with the executive summary, after which I will provide more detail:

• US and Canada have an existing tax treaty that imposes specific rates for investment income earned by Canadian residents from US sources.
• FATCA places a new condition on receiving those rates.
• This restricts the benefits of the treaty, which is treated as a treaty override by the terms of the treaty itself.
• The treaty provides that the remedy for such an override is a change to the terms of the treaty.
• the IGAs do not change the terms of the treaty but purport to interpret it to allow a different new condition (which condition is itself an override of the domestic FATCA statute) to take effect immediately. 

And now for the detail.

Canada and the US have a tax treaty in force in which each government agrees to impose specified tax rates on domestic-income received by investors in the other country. For example, a Canadian person (individual or entity) that invests in the stock of a US corporation and receives dividends on that stock would be subject to a maximum rate of 15% US withholding tax on that dividend under the treaty (see Art. 10); for royalties, the maximum rate would be 10%, and for interest and most capital gains, no tax would be withheld by the US (see Art. 11 and 13(4)).  In most cases, a tax treaty overrides domestic statutory law that would impose a higher source-based tax rate on payments made to foreign persons.  Accordingly, the statutory US rate on a Canadian resident receiving passive income from US sources would be 30% (with several exceptions, see s. 871). The agreement undertaken in tax treaties is that the US will not impose that statutory rate on payments to Canadian residents, but will restrict its tax to 15% (dividends), 10% (royalties), or even 0 (most interest and capital gains).

Every tax treaty also includes information exchange provisions under which each country agrees to "exchange such information as may be relevant for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes to which this Convention applies insofar as the taxation thereunder is not contrary to this Convention." In the Canada-US treaty that is Article 27.

Although this is not critical to the override argument, it is worth noting that the various provisions of the treaty are not conditional on each other; that is, Canadian residents are entitled to the specified tax rate even if, for example, the countries get into a tangle over their information exchange efforts.

FATCA's effect is to impose a new condition on the treaty-based withholding tax rate. That is, under FATCA, the only way for resident Canadian institutions to continue to get the treaty rate (of 0, 10, or 15%, depending on the type of income in question) is to fulfill FATCA information gathering and reporting requirements. If they do not fulfill these requirements, they will not be eligible for the treaty rate, but rather they will be subject to a 30% withholding rate on all "withholdable payments"--an expansive concept of US-source income items which you can read in the statute.

FATCA is thus a new condition on the treaty rate, a condition that is not by any stretch included or even contemplated in the treaty.  Indeed, how could FATCA be contemplated by any treaty that came into force prior to 2010, as FATCA did not exist as law before then.  This is not to say that no conditions can be placed on the access of Canadian residents to treaty rates. There are many existing conditions for treaty benefits--see particularly the limitation on benefits clause (Art 29A), which are quite expansive and form a major part of any treaty negotiation with the US.  But it is to say that FATCA's particular condition is not in the treaty.

Therefore FATCA overrides the existing treaty by unilaterally denying the treaty rate to Canadian residents who would otherwise qualify therefore under the existing, duly negotiated, treaty provisions currently in force.

Now let us look at Art 29(7), which tells us how the countries are supposed to deal with potential tax treaty overrides that arise when one country enacts a domestic law that conflicts with the treaty in effect:

"Where domestic legislation enacted by a Contracting State unilaterally removes or significantly limits any material benefit otherwise provided by the Convention, the appropriate authorities shall promptly consult for the purpose of considering an appropriate change to the Convention."

Thus the remedy to a law that would restrict or remove a material benefit--namely, a specified tax rate on a payment of US-source income to a Canadian investor--is a change to the convention.

A change to an existing convention is undertaken in a protocol. A protocol is in legal terms nothing less than a new treaty that overrides specific provisions of the existing treaty to reflect the parties' later agreement. That is, to change a treaty, each government must agree to the change via a new treaty, which each government must ratify under its internal treaty-making processes.

This therefore suggests that the proposed intergovernmental agreements (IGAs) are not a valid means to get FATCA to work as a matter of law. This is because the US is not treating IGAs as treaties at all; it is treating them as interpretations of the existing treaty, specifically, the information exchange provision.  You can read this setup in the preamble to these agreements. This position seems plainly incorrect, but the subject of the legal status of the IGAs is its own complicated analysis, and I will post more on that subject very soon.

I will note, however, that the IGAs further muddy the interpretive waters since what they do is in fact override the terms of the FATCA statute, by switching the reporting relationship from Canadian resident institutions to a government-to-government relationship. Some have argued that they do not override but merely use Treasury's mandate to define exemptions to FATCA. Perhaps, but Treasury was not given any mandate by Congress to encase those exemptions in international agreements. Moreover, it seems a real stretch to assert that the IGAs simply interpret existing information exchange provisions, especially when it is clear that many or most countries will have to enact domestic legislation to fulfill the new reporting requirements. The valid way forward for Treasury would have been to create straightforward conditional exemptions: exempt countries from FATCA provided those countries enacted laws according to Treasury specifications. That would still be an extra-territorial reach, perhaps, but there are precedents for the mechanism (such as what was done to shut down bearer bonds--thank you to Michael Schler for reminding me of that example, and I know that there are others as well). But, importantly, this established way forward would not solve the tax treaty override problem. Therein may lie a main reason for going the IGA route, even though it is not a clearly valid resolution.

What is clear at this stage is that FATCA overrides the existing tax treaty by significantly limiting a material benefit thereunder, and the only valid way to fix that override is to change the treaty itself, by entering into a new protocol. We can see that the US and Canada have a lot of experience with protocols: protocols to the current tax treaty were signed on June 14, 1983, March 28, 1984, March 17, 1995, July 29, 1997 and September 21, 2007. One of those was to fix another infamous US tax treaty override: the branch profits tax. In short, it doesn't seem to have been that big deal in the past to agree to changes to the treaty terms by the normal treaty-making process, even when the issue was unilateral override, which is typically seen as a bit of bad faith in international relations. That raises the question why this particular change is not being marshaled through the same process.  I will leave it to the reader to speculate for now, and will have more on this later as well.

Here they are--FATCA final regs

All 500 pages.  No time to comment on these now, as I'll be talking about FATCA in Malibu tomorrow.