FATCA: T
Light at the end of the tunnel? A glimmer of hope has emerged for reform of the US’s controversial Foreign Account Tax Compliance Act, which has caused financial headaches for millions of American international assignees and prompted 7,000-plus expats to renounce US citizenship. David Sapsted explains.
he US’s post-financial-crisis Foreign Account Tax Compliance Act (FATCA), originally intended to expose details of foreign bank accounts held by Americans living in the US, requires
overseas financial institutions to reveal to the US Treasury information on the accounts of all US citizens or face a ban on financial dealings with the United States. As a result of FATCA’s onerous requirements, some banks across
the world are now refusing to handle any US expats’ accounts. This summer, however, the congressional co-chairs of the
Americans Abroad Caucus, Representative Carolyn Maloney, a New York Democrat, and Representative Mick Mulvaney, a Republican from South Carolina, have been attempting to get the House of Representatives to support a ‘same-country exception’ ruling. Jonathan Lachowitz, founder of White Lighthouse Investment
Management, in Lexington, Massachusetts, and Lausanne, Switzerland, explained in the Wall Street Journal, “The same-country exception, as envisioned by the overseas organisations backing its implementation, would exclude from FATCA reporting – for both individuals and foreign financial institutions – accounts held by US individuals in the country where they are bona fide residents. “For instance, an American who is a bona fide resident of Brazil
would no longer have to report his or her financial accounts in Brazil. “Additionally, financial institutions in Brazil wouldn’t have to report
these accounts annually to the IRS [Internal Revenue Service]; in effect, they’d deem Americans resident in Brazil as local, and wouldn’t subject them to potential restrictions on local financial services.”
A burden for expatriates Mr Lachowitz said that FATCA had made it difficult for US expats
to procure financial services, including banking and investment management, insurance and mortgages, in their host countries.
He added, “Support for the same-country exception is also coming
from within the IRS. The National Taxpayer Advocate’s latest report to Congress lists the same-country exception as a key focus point to mitigate the unintended negative consequences of FATCA. “A full repeal of FATCA still remains the goal of some individuals
and organisations, of course … but the same-country exception would be a middle ground that would ease the burden on Americans living overseas while continuing to focus primarily on Americans living in the US who maintain financial accounts overseas. “If nothing else, FATCA has highlighted the burdens the US tax
system places on overseas Americans. Hopefully, implementation of a same-country exception will be a significant step toward comprehensive reform.” The two representatives have written to Secretary of the Treasury
Jacob Lew and IRS Commissioner John Koskinen pointing out that FATCA has “created the unintended consequence of limiting overseas Americans’ access to legitimate banking services”. They continue, “We respectfully request that the Treasury
Department adopt a recent Taxpayer Advocate Service recommendation that Foreign Account Tax Compliance Act reporting exclude financial accounts maintained by a financial institution in the country of which the US person is a bona fide resident.” Mr Lachowitz said that members of Congress and their staff were
now starting to listen more closely to the concerns of US expatriates. “Candidates for election realise that overseas Americans voting
absentee could make a difference in close elections,” he added, “which makes it an opportune time for expats to reach out to their lawmakers and ask them to support the same-country exception.”
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