Editor: this article is from the Op-Ed pages of the International NY times
An American Tax Nightmare
By STU HAUGENMAY 13, 2015
SAINT-GERMAIN-EN-LAYE,
France — No one likes tax cheats. They should be pursued and punished
wherever they are hiding. But recent efforts by the United States
Congress to capture tax revenues on unreported revenues and assets held
in foreign accounts are having disastrous effects on a growing number of
Americans living abroad.
The
Foreign Account Tax Compliance Act, or Fatca, signed into law in March
2010 but only now coming into full effect, has been a bipartisan lesson
in the law of unintended consequences. Pressure is growing to halt its
pernicious impact.
Intended
to crack down on people who stash taxable income abroad, the law
requires foreign banks to identify American clients and report all of
their financial account information, including transaction details on
checking, savings, investment, pension, mortgage and insurance accounts,
to the United States government. Banks and financial institutions that
do not comply are subject to a 30 percent withholding tax on revenues
generated in the United States, a crushing penalty in today’s
cross-border financial markets.
The
bureaucratic burden of identifying, verifying and reporting has caused
many banks to regard American clients, particularly those of moderate
means, as more trouble than they are worth. Middle-class Americans
living abroad are losing bank accounts and home mortgages and, in some
cases, having their retirement savings exposed to debilitating taxes and
penalties.
Sounds far-fetched? Here are some examples collected and documented by American organizations overseas:
•
An American woman and her Swiss husband, married for more than 20
years, were told that they would lose the mortgage on their family home
due to the law’s reporting requirements.
•
An American man, living in Brazil, had a promising career in management
with a French multinational corporation. He was told that he would be
passed over for promotion, effectively ending his career with the
company, because as Country Manager he would have signatory authority
over the French company’s local bank accounts. The law would require
that all transactions on the company accounts, despite not being taxable
in the United States, be reported to the American Internal Revenue
Service.
•An
American couple, living in Australia for many years, received notice
that the merchant banking account for their chain of retail stores was
to be canceled, as Fatca reporting demands overwhelmed their bank’s
capabilities. Without banking and credit card facilities, their business
would be doomed.
And
there are many more examples. There is no recourse and no appeal
process. Those impacted are left with the choice of uprooting their
families (including foreign spouses and children), careers and
businesses to re-establish a life in the United States; or to make the
painful decision to renounce their citizenship.
Without
significant and timely changes, that will only be the tip of the
iceberg as foreign financial institutions continue their search for
unprofitable American accounts. Remember, the vast majority of those
renouncing citizenship are not wealthy tax evaders trading their
passport for income tax savings; they are middle-class Americans, living
overseas, fully compliant with their U.S. tax and reporting
obligations.
An
option for some might be to transfer assets to American bank accounts.
But opening accounts in the United States for those living abroad has
become virtually impossible in the post- 9/11 world, foreign employers
will typically only pay salaries into local accounts, and this option
does not address home mortgages, insurance policies, etc. (Foreign
branches of American banks are not exempt from the law’s reporting
requirements either.)
To
do nothing is a disaster scenario for Americans overseas. Middle-class
taxpayers will continue to lose the financial accounts critical to their
daily lives at an accelerating rate or they will, in desperation,
renounce their U.S. citizenship. Either way, America’s international
presence and competitiveness will be hurt.
Worse
yet, the law has spawned a potentially more intrusive program known as
the Global Account Tax Compliance Act, or Gatca. The proposal, developed
by the Organization for Economic Cooperation and Development, calls for
data from accounts opened by a foreign national to be automatically
reported to that person’s homeland tax authorities. While Gatca is in an
early stage of negotiation and implementation, observers believe that
as many as 65 countries will ultimately be involved.
Fatca,
and by extension Gatca, are forming more links in the chain of global
government snooping into the lives of innocent individuals under the
guise of identifying criminals and tax cheats. For Americans, it is a
massive breach of the Fourth Amendment, which forbids unreasonable
search and seizure.
The
repeal of Fatca is the only way to end this dangerous and growing
government overreach. A bill has been introduced in the United States
Senate to repeal provisions of the law but, in the heat of the
approaching presidential campaign, congressional repeal is not going to
happen.
The
only viable option is legal action to challenge the law’s
constitutionality in the courts. We, a bipartisan group of Americans
living overseas, have formed a group called Fatca Legal Action to fund
and mount this challenge. The Republican National Committee and
Republicans Overseas have endorsed the legal repeal of Fatca. To date,
neither Democrats Abroad nor the Democratic National Committee has done
so, but there is strong and growing support among rank-and-file
Democrats living overseas, several of whom have agreed to be named as
plaintiffs when the lawsuit is filed in the next few weeks.
If
the law is voided in the United States on constitutional grounds, it is
likely that Gatca, without the support of the world’s largest financial
community, will not survive either.
Stu Haugen is an American marketing, sales and general management expert who has lived and worked overseas for 29 years.
A version of this op-ed appears in print on May 14, 2015, in The International New York Times.
