I hope you are well. I thought I would share with you something I’ve written to both Liberty and Privacy International regarding a recent IGA signed between HMG and the US on the US tax law FATCA, and to be written into law in the 2013 Finance Bill. This has huge implications for many British people and possibly everyone living here (as someone will have to bear the costs of implementing FATCA compliance in the banks.)
The US’s extraterritorial taxation on citizens has many other implications beyond just collecting tax from Americans. For instance, US tax law says that because I am Treasurer for [a community group I belong to], I would have to divulge ___’s account information to the IRS.
US tax law for expatriates has become so burdensome in terms of the cost and effort of compliance, with draconian penalties for non-compliance, that I took the very difficult decision to renounce my US citizenship, which I did back in May (rendering me 100% British!). So you can say I no longer have a pony in this race. However, FATCA is a time bomb ready to go off in the world’s financial system, and should even one or two British banks be deemed non-compliant by the IRS, we could see a liquidity meltdown thanks to the withholding regime that would be imposed on the US accounts of non-compliant banks.
US extraterritorial taxation also denies money to the Exchequer both directly and indirectly, as US persons (see my note below for what constitutes a US person) [in my letter to Liberty] seek to structure their affairs to minimise their taxation burdens in both countries.
Additionally, besides the lifting of data protection for British citizens that the IGA commits our government to, it implies some level of reciprocity from the US for similar information on UK persons. However, a recent explanatory letter – attached – from the US Assistant Secretary of the Treasury for Tax Policy to Senator Rand Paul makes it clear that US banks will not be subject to similar obligations, saying:
While the reciprocal version of the Model Agreement includes a commitment to pursue equivalent levels of reciprocal automatic exchange in the future, no additional obligations will be imposed on U.S. financial institutions unless and until additional laws or regulations are adopted in the United States.
It appears the IGA is rather one-sided, and appears as a typical further extension of the “special relationship” with the US. I am not sure whether your colleagues at Treasury and the FCO are aware of the lack of obligation on the US’s part given the division between executive and legislature that does not exist here.
Anyway, the FCO memorandum – attached – on the IGA stated that there will be a consultation period, so please consider this my input.
Rather than bending over backwards to comply with US law, non-US governments and banks should be resisting this attack on sovereignty and the affairs of their residents.
With warmest regards,
A Gentleman’s Rapier