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Sunday, April 9, 2017

Now that the FATCA legislation has been enacted in T&T after a lengthy bi-partisan battle to reach cross-party consensus comes word out of Washington that the process to repeal FATCA in the United States has begun.

Last Monday, Republican Senator Rand Paul (R-Kentucky) and Representative Mark Meadows (R-North Carolina) jointly signed a letter addressed to both Treasury Secretary Steven Mnuchin and White House Director of the Office of Management and Budget (OMB) Mick Mulvaney, serving notice of their intended filing of legislation to repeal FATCA and also calling on the Treasury Department to initiate a process of disabling the Inter-Governmental Agreements (IGAs) by which FATCA has been operationalised globally.

This is clearly an effort that is being driven by the House Freedom Caucus which is now led by Mark Meadows. Interestingly, the immediate past chairman of the House Freedom Caucus was Mick Mulvaney who is now the director of the OMB in the White House.

The opening two paragraphs of Paul/Meadows letter read as follows:

“This is in reference to the Foreign Account Tax Compliance Act, or FATCA [26 US Code 1471-1474; 26 USC 6038D], a massive, wasteful regulatory mandate that has failed in its ostensible purpose of recovering tax revenues hidden offshore. During the last Congress we introduced bills to repeal FATCA (S 663 and HR 5935), which Director Mulvaney cosponsored. We plan to reintroduce the same legislation in the 115th Congress, and efforts are underway to include it in any tax reform legislation.”

After a round of golf with President Trump last Sunday, Rand Paul spoke to the media to say that their discussions had gone well and it seemed as though both tax reform and another shot at healthcare were on track. Interestingly, the other person playing golf with them last Sunday was Mick Mulvaney.

Now comes the first shot in FATCA repeal with the filing last week of legislation in the US Congress that will form part of President Trump’s tax reform agenda. The Paul/Meadows letter did not stop at just the tax reform package, but also took aim at the IGAs. According to them:

“In addition to these legislative efforts, we wish to bring to your attention steps that can be taken by the Trump Administration with respect to FATCA. These steps mainly concern so-called ‘intergovernmental agreements’ (IGAs) used by the Obama administration to implement FATCA. This was done largely because FATCA, on top of its other defects, failed to take into account other countries’ privacy laws that would preclude their financial institutions’ reporting private personal data to the Internal Revenue Service. The IGAs oblige other countries—under threat of substantial financial sanctions—to enact domestic legislation abrogating their privacy laws and mandating delivery of the data demanded. In addition, many of the IGAs commit the US to ‘equivalent’ levels of data exchange from domestic American financial institutions, a costly endeavor for which Congress rightly has refused statutory authority.”

Both Paul and Meadows have recognised the legal and constitutional weaknesses of the IGAs. For the time being, the US in under no obligation to provide tax information to the other parties who are signatories to their IGAs however, the other parties have imposed on themselves a legal obligation to provide tax information to the US under pain of “substantial financial sanctions” thereby creating a one-way street.

The Paul/Meadows letter calls on the Treasury Department to implement the following four policy initiatives:

1. Issue a statement of administration policy to the effect that the Trump administration is committed to the repeal of FATCA.

2. Instruct the Treasury Department’s Office of International Affairs and other elements of the department that may be involved to cease all efforts to negotiate, sign, and implement IGAs.

3. Announce that the IGAs are under legal review of their authority and that if they are found to be legally infirm they may be decalred invalid ab initio with immediate effect or terminated upon expiry of the one-year’s notice specified.

4. Under the broad authority FATCA grants the treasury secretary, deem all impacted foreign institutions compliant on a temporary basis pending outcome of the legal review of IGAs. The IRS should also be instructed to suspend enforcement of provisions impacting individual taxpayers.

This is a major initiative that is connected to tax reform. While it may be too small to be considered a trade-off with the House Freedom Caucus in exchange for some concessions on healthcare reform which the House Freedom Caucus effectively blocked a few weeks ago in the US House of Representatives, it would represent an implementation of a policy position of the Republican Party based on what was stated in the 2016 Republican Platform that was approved at their convention in Cleveland last July.

Perhaps the most stinging blow to the former Obama Administration in the Paul/Meadows letter was this particular sentence:

“In short, the IGAs are a characteristic example of the previous administration’s inclination for abusing its Executive power. For that reason, these same abuses are amenable to Executive action to mitigate the ongoing damage caused by FATCA, pending its repeal.”


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