A coalition of Asia Pacific investment fund and asset management associations said that the Foreign Account Tax Compliance Act is an attempt by the U.S. to unilaterally super-impose its tax system, ``arguably the most complex regime in the world’’, on all of the world’s financial institutions. In a letter to the IRS and Treasury, fund associations from
Singapore, India and Hong Kong
said that FATCA is an unprecedented move away from the long accepted practice
of international bilateral and multinational agreements.
FATCA unilaterally sets new standards for identifying and verifying the beneficial owners of companies, said the groups, thereby undermining the multilateral approach adopted by the Financial Action Task Force, which is the global standard setter for anti-money laundering regulations. The fund associations urged the IRS to exempt national retirement and pension regimes from FATCA altogether since they pose a low risk of tax evasion. The groups suggested that each government within the Region could supply the list of its own retirement and pension schemes to the IRS before the end of this year.
Among others, the letter was signed by the CEOs of the Australian Financial Services Council, the Indian Mutual Funds Association, and the Hong Kong Investment Funds Association, as well as the Executive Director of the Singapore Investment Management Association.
FATCA requires all foreign financial institutions (“FFIs”), and not just those dealing with the
U.S., to have a detailed
working understanding of the
tax system in order to implement its procedures. The system is highly costly
and onerous, said the groups, noting that the passthru payments system is so
complicated, intrusive and based on such tenuous and indirect connections with
that it will be unworkable. FATCA also directly contravenes, in a number of
jurisdictions, local data protection and privacy laws, emphasized the fund associations,
which will place FFIs in the difficult position of coming up with a way to
reconcile the conflicting requirements. U.S.
Despite the fact that FATCA has provided certain exemptions to national retirement and pension regimes in recognition of the fact that they generally pose low tax risk, the groups believe that the way in which the regulations are drafted will mean that effectively few, if any, of these regimes will be able to enjoy the exemptions. This outcome is not surprising, said the groups, because each and every national scheme has its own political, economic and social context, making it impossible for a piece of sweeping legislation to capture all the nuances.
In the view if the groups, FATCA’s effectiveness in furthering the cause of combating tax evasion is highly dubious. FATCA’s mechanical approach of flagging a discrete set of simple
indicia is likely to result in tax evaders simply deliberately misrepresenting
such indicia. The construction of an elaborate compliance mechanism around such
indicia is therefore unlikely to be effective in combating tax evasion. U.S.
Finally, the associations noted that FATCA imposes excessive and disproportionate compliance costs on FFIs, especially at a time when financial firms and institutions have to grapple with a raft of new regulatory changes introduced to increase the robustness of the global financial system. It is envisioned that the aggregate costs will far exceed the additional revenue that FATCA will bring in to the U.S. Treasury.