(Washington, D.C., Tuesday, February 4, 2014) The Center for Freedom and Prosperitysubmitted testimony in response to open solicitations from the Parliament of New Zealand regarding tax legislation to implement compliance with the Foreign Account Tax Compliance Act (FATCA). Authored by CF&P Director of Government Affairs, Brian Garst, the testimony warned that appeasement of U.S. demands is the wrong approach, suggesting instead that New Zealand should join in efforts to repeal FATCA.
CF&P President Andrew Quinlan commented, “FATCA is truly a global problem. The best course of action is not for nations to negotiate individually with the IRS in hopes of appeasing the U.S., but to all stand together in opposition to fiscal imperialism.”
Burdens imposed by FATCA have sparked significant opposition throughout world, as foreign institutions are expected to bear the costly burdens of implementing a law that is expected to raise very little revenue – a mere $800 million per year according to the Joint Committee on Taxation’s estimates. Many institutions have responded by dropping American clients, and investment is expected to flee the U.S. in response to FATCA’s stiff withholding penalties. Citizens in nations like New Zealand also face significant privacy concerns, as their information is likely to be caught up in efforts to identify “U.S. persons.”
CF&P experts are engaged in talks with numerous jurisdictions and individuals affected by FATCA, urging them to pursue any and all avenues to mitigate or undue the unreasonable burdens imposed via FATCA. The mission of CF&P is to promote tax competition, financial privacy and fiscal sovereignty, and it was on the record opposing FATCA since before its passage. CF&P experts have worked – through meetings, speeches, and op-eds – to educate lawmakers, regulators, media and the public by highlighting the growing list of problems documented throughout the FATCA implementation process.
To: Parliament of New Zealand, Parliamentary Select Committee
Re: Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill
My name is Brian Garst. I am the Director of Government Affairs for the Center for Freedom and Prosperity (CF&P), a U.S. based think-tank that seeks to promote and preserve global tax competition, financial privacy and fiscal sovereignty.
I urge New Zealand to reject the extralegal demands placed upon your government by the Foreign Account Tax Compliance Act (FATCA)
FATCA has as its objective the conscription of foreign institutions as agents of the Internal Revenue Service (IRS). As a consequence, New Zealand based financial institutions face significant compliance costs and the possible loss of business. The law also raises privacy concerns for New Zealanders, as the private financial information of some New Zealand citizens, especially in cases where they have an American spouse or share a joint account with an American, will inevitably be caught in the FATCA net.
The impetus for the law was a desire to catch U.S. tax cheats, yet the U.S. government’s own estimates expect it to bring in very little new revenue – less than $800 million per year over ten years. For comparison, the U.S. government spent nearly $3.5 trillion in fiscal year 2013, and collected almost $2.8 trillion in taxes. In other words, New Zealand is expected to bend over backwards and surrender fiscal sovereignty by upending tax and privacy laws so that the IRS can add another drop of tax revenue to the ocean that is the U.S. federal budget.
This is not the request of a respectful international neighbor, but rather a demand from an arrogant bully. As with any bully, appeasement is ill-advised.
FATCA is not the result of a carefully considered, deliberative process. Rather, it was passed as an afterthought to pay for unrelated legislation. There was no debate among elected representatives in the U.S. government, and no hearings to determine whether it was a wise approach. Most who voted for the legislation containing the law likely had no idea what FATCA even entailed. Given this fact, New Zealand ought to be wary of signaling a commitment through present day acquiescence to comply with yet further demands passed on any potential future whims of the U.S. Congress.
In order to placate the legitimate concerns and outrage of foreign governments, the U.S. Treasury Department – which as part of the Executive Branch has no policymaking authority – has concocted the intergovernmental agreement (IGA) process. For signing partners these IGAs have all the appearance of treaties without any of the benefits. The IGAs were not authorized in the FATCA legislation, and will not be submitted to Congress for approval – the proper process by which the U.S. government ratifies treaties. In other words, they do not commit the U.S. government to anything, and will not protect New Zealand from unexpected and unwelcome demands in the future.
As information about FATCA continues to grow within the United States, so to do demands to repeal its unjust burdens on the sovereignty of foreign nations. Legislation to repeal FATCA (S. 887) has been introduced in the U.S. Senate, and the Republican Party has recently added FATCA repeal to its official platform.
Rather than enabling U.S. fiscal imperialism, New Zealand should join with others in the international community and demand respect for its sovereign rights by calling upon the U.S. government to repeal FATCA.