In a letter to Treasury Secretary Tim Geithner, four U.S. Senators question the scope and authority
of an intergovernmental framework for FATCA compliance that features a
reciprocal arrangement under which the U.S.
is willing to reciprocate in collecting and exchanging information on accounts
held in U.S.
financial institutions by residents of five EU countries. The Senators ask
Treasury to respond to a series of questions on the framework, including
whether legislation will be needed to implement, within thirty days of receipt
of the letter, which is dated July 25, 2012. The letter was signed by Senators
Saxby Chambliss (R-GA), Ranking Member on the Intelligence Committee, Jim
DeMint (R-SC), Mike Lee (R-Utah) and Rand Paul (R-KY).
FATCA was enacted in 2010 by Congress as part of the Hiring Incentives
to Restore Employment (HIRE) Act. FATCA requires foreign financial institutions
(FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers
hold a substantial ownership interest. FATCA is an important part of the U.S.
government’s effort to improve tax compliance.
Under the framework, FATCA partner countries would agree to pursue the
necessary implementing legislation to require foreign financial institutions in
its jurisdiction to collect and report to authorities of the FATCA partner
country the required information for later transfer to the United States
on an automatic basis. However, observed the Senators, the model makes no
reference to the legislative authority by which the U.S.
would require domestic financial institutions to collect and report information
to the U.S.
government for transfer to FATCA partner countries. The Senators ask if
Treasury anticipates that legislation will be needed to require U.S. financial
institutions to collect and report information on the accounts of residents of
FATCA partner countries, or amendments to existing tax treaties or does
Treasury have authority to issue regulations to that end. If legislation is
needed, when will it be proposed and, if regulations can be adopted in this
area, cite the statutory authority for such adoptions.
The joint statement does not specify the types of institutions that
would be considered U.S.
financial institutions for purposes of information exchange with FATCA partner
countries. The agreement commits the US to reciprocity on collecting and
reporting information. The Senators said it was thus reasonable to infer that
the definition of U.S. financial institution would the same or similar to the
broad definition of a foreign financial institution in FATCA, codified as IRC
Section 1471(d)(5), which is a broad definition embracing banks, investment
funds, and securities and commodities trading firms.
The Senators ask Treasury to describe the types of U.S. financial
institutions comparable to the foreign financial institutions defined in Code
Section 1471(d)(5), that would be subject to legislation or regulations
establishing the reciprocal information exchange with FATCA partner countries.
While the anticipated cost of FATCA compliance for foreign financial
institutions is estimated to be substantial, noted the Senators, they are not
aware of any estimated costs of domestic U.S. financial institutions to
comply with collecting and reporting the information on the five initial FATCA
partners pursuant to the commitment in the agreement. The Senators ask if
Treasury has conducted or is aware of a study of the potential costs and
benefits of FATCA from a revenue standpoint, either with or without the reciprocal
arrangement. More broadly, the Senators ask if Treasury conducted a study of
the costs and benefits of FATCA from a broader economic standpoint, such as the
refusal of foreign firms to do business with U.S.
citizens or withdrawal of foreign investment from the U.S.
The Senators are also concerned about the compromising of personal
financial information. They ask what types of assets, such as bank account
interest, hedge fund and private equity fund accounts, and trusts, would be
subject to collection and reporting by U.S. financial institutions under
the commitments made in the joint statement. Similarly, what types of personal
data and categories of persons would be required to be part of the collection
and reporting. Importantly, the Senators
ask what safeguards Treasury would apply to protect asset and personal
information in the course of collecting and reporting by U.S. financial
firms and later transfer to partner governments.
Citing media reports that the Treasury Office of Tax Policy is working on
a single model agreement under FATCA in consultation with partner countries,
the Senators ask Treasury to provide immediately the text and explanations of
any model agreement to which any foreign government has access.
Noting that under the joint statement, the U.S. would commit to work with
other FATCA partner countries, the OECD and the EU on adapting FATCA to a
common model for the automatic exchange of information, the Senators ask what
Treasury anticipates would be the role of the OECD or the EU pursuant to U.S.
FATCA reciprocal commitments. Further, Treasury must respond on whether it
anticipates that financial information and personal data collected and reported
by domestic U.S. financial
institutions pursuant to the commitments made by the U.S. for transfer to partner
governments would also be transferred to the OECD and EU, or any other
international organization.