The approval came in the form of a vote on Friday by the Republican National Committee (RNC), at its winter meeting in Washington. It comes as the controversial anti-tax-evasion law‚ long a concern primarily of American expatriates‚ continues to attract State-side attention just five months before it is set to come into effect.
Industry sources and other observers said that actual repeal of FATCA is unlikely at this stage, and some said the repeal resolution and vote were mainly intended to send a message to expatriate voters in particular, indicating that the Republicans were the party that was best looking after their interests.
Signed in 2010
Since FATCA was signed into law in 2010 by president Obama (who is a Democrat), many American expatriates have been finding that the financial institutions in the countries in which they live have been asking them to take their accounts elsewhere. These institutions are shunning US expatriate clients to avoid having to report to the US tax authorities on any US account holders they might have whose assets under management are worth $50,000 or more – as FATCA requires them to.
The hassles have become so great that growing numbers of US expats have begun renouncing their citizenships.
As reported here last year, one of the Republican Party’s most outspoken senators, Rand Paul of Kentucky, who is also a member of the so-called Tea Party movement and a known libertarian, introduced a bill in Congress to repeal "anti-privacy" provisions of the controversial Foreign Account Tax Compliance Act in May.
Paul argued that FATCA "infringes upon basic constitutional rights", in addition to being a poor tool for combating tax evasion.
Sponsor is naturalised Chinese immigrant
The chief sponsor of the RNC resolution to repeal FATCA is a China-born, naturalised American from Oregon named Solomon Yue. An RNC member since 2000, Yue says he was moved to take the action because he heard how American expatriates have been struggling as a result of the law.
"I first became aware of the issue that overseas American citizens are forced to choose between their citizenship and livelihood due to FATCA in the international media," he told International Adviser.
"This hit a raw nerve with me, because my US passport is my freedom."
Yue says he "escaped the tyranny" of China's Cultural Revolution years ago by coming to the US to study, knowing only enough English to say "thank you" and "Coke Cola". Thus he says he cannot help seeing the need some American expats are facing "to choose between their love for their country by not renouncing their citizenship, and the welfare of their families by providing for them", caused by FATCA, as a "modern-day Sophie's Choice".
Reciprocity feature
Foreign financial institutions and foreign governments were also initially hostile to FATCA, and many banks and other institutions still are. However, a growing number of foreign governments around the world have begun to embrace it, as the possibility of being able to benefit themselves from similar types of information exchange – notably with US financial institutions, such as banks, that have accounts belonging to their own taxpayers – has emerged over the past 12 months.
Thus far, 16 countries have signed up to so-called Model 1 FATCA “inter-governmental agreements” (IGAs), including the Cayman Islands, the Isle of Man, Jersey, and Guernsey; and three have signed up to Model 2 IGAs, including Switzerland and Bermuda. The two types of IGAs eliminate the need for foreign financial institutions (FFI's) to report directly to the US tax authorities on their American clients, by establishing a national framework within the foreign country's borders to compile the data, which would then be forwarded.
'Not a US domestic issue'
According to US press reports, the RNC resolution supporting FATCA’s repeal is not thought likely to be an issue for domestic voters at the next election, as they, for the most part, are still unaware the law exists.
Organisations that campaign for greater scrutiny of offshore tax havens, meanwhile, saw Friday’s vote as a step backward. Global Financial Integrity, a non-partisan advocacy organisation group based in Washington, said in a statement issued before the vote that if the law it calls “the cornerstone of the US effort to fight offshore tax evasion” were repealed, it would “cripple [the] US crackdown on tax havens and financial secrecy, and cost the US taxpayer billions”.
“It is mind-boggling that a major political party would even consider endorsing a resolution to facilitate tax evasion,” Heather Lowe, the organisation’s legal counsel and director of government affairs, said.
“Tax haven secrecy is estimated to cost US taxpayers $150bn per year…tax evasion and illegality do not belong in the official platform of any political party.”
Yue responds to such criticisms by stressing that the Republican party is not looking to defending tax evasion or protect tax evaders. "The problem with FATCA is that it [will use] a dragnet approach just like the National Security Agency's dragnet, to capture a few tax-cheaters at the expense of violating 7.6 million overseas Americans' right to privacy, right to earn a living, right to have banking services, and right to their private property," he insists.
Yue also takes issue with the assumption that the repeal FATCA cause is hopeless, insisting that in fact the chances of success are “very good”.
Now that the repeal motion has been approved, the next step will be “to inform our grassroots membership and Congress [about] FATCA's negative impact on 7.6 million overseas Americans' lives,” he says.
“The third step is to send this resolution to all the foreign embassies in Washington DC, so their governments see there is no need to sign intergovernmental agreements with the US. Without such agreement[s], it would be difficult to enforce FATCA globally.”
If repealing the act could then be made a part of the Republican’s party platform heading into the 2016 presidential election, repeal would then, he says, be possible, with the support of enough of a majority in both houses of Congress and the White House.
To read about how some US banks last year wrote letters to Washington officials calling for the substantial amendment, or repeal, of FATCA, click here.
To read about how some US financial insitutions have begun telling American expats to take their tax-deferred retirement accounts elsewhere, click here.
