Mitt Romney - what were you thinking? Photo credit: Gage Skidmore, http://flic.kr/p/9itUtP
We have been waiting for some time now for the IRS to produce the promised regulations for the Foreign Account Tax Compliance Act (FATCA). Some (quite sad) people expected a bumper package, from the IRS, in their Christmas stocking, but it didn’t arrive and is now expected next week, at the end of January.
As a piece of legislation ostensibly created to fund the Hiring Incentives to Restore Employment (HIRE) act, FATCA has always been a bit of a winner in the popularity stakes in the US. It was, apparently cleverly, designed to bring money back into the US to fund tax breaks for employers, which will enable them to give jobs to the long term unemployed. It will do this by sniffing out higher earning (over $50,000 per annum) overseas tax evaders and force them to pay what is due to the IRS.
There has been some speculation recently, possibly due to the tremendous global outcry to the IRS over the enormous amount of work and cost that FATCA is going to cause (to seemingly everyone in the corporate world) that the legislation may be toned down. Could the lateness of the regulations be a glimmer of hope in the horror of the monumental FATCA burden that looms before us?
Then this week (at the time of writing, it’s only Wednesday) we are greeted with two news stories that undo any twinkling hope left. The State of the Union Address and Mitt Romney released his tax returns. Can I just say “Mr Romney, what were you thinking?”? Not that he’s doing anything illegal, but perhaps in the light of FATCA, he could have held himself up as an example of how to behave as a responsible citizen, as, although he is taking advantage of offshore tax efficient accounts, which he is completely entitled to do, might it have been advantageous to bring this to light earlier?
FATCA will demand that all Foreign Financial Institutions report to the IRS on any accounts with specified connections to the US, for example US passport holder or green card holder. Romney’s accounts will be reported under FATCA, as they already are reported under existing tax reporting requirements. FATCA’s intention to worm out those who aren’t reporting to the IRS already, thus not paying tax to the US, gets muddied when the world focusses its attention on cases like Mr Romney’s.
And so to the State of the Union Address. President Obama’s speech did feature many references to tax and the equity of its payment and mention was made of financial institution misbehaviour and the rules that have been passed to prevent such further occurrences. Hope for the easing of FATCA requirements sank completely at the point that “Tax reform should follow the Buffett Rule” appeared. FATCA is an onerous, US imposed piece of global legislation and it is going to cause, much reported, huge amounts of work for any institution within the world of finance, whether they have US connections or not, if they want to be able to continue to do business with the rest of the world. Any easing of the requirements or deadlines would probably be welcome at this stage, as not having the regulations defining the actual interpretation of the legislation is causing some consternation.
My main issue, after studying FATCA in some depth and listening to, and reading, the State of the Union Address, is that the US are dictating to the rest of the world about how they need to behave in business, while they do not adhere to the same principles themselves (see Buffet comment above). President Obama talks about American values of fair play and shared responsibility that will help protect the US people and economy, yet this sense of fair play does not seem to extend entirely to the way that the US practices its own business. As it happens, we’re still waiting for the Incorporation Transparency and Law Enforcement Assistance Act to move forward – maybe that could help the new Financial Crimes Unit, mentioned in President Obama’s address, to fight fraud at home, as well as abroad.