What Could the Result of the U.S Election Mean For FATCA?
A number of anti-FATCA groups have been celebrating the election of the 36th President Elect of the United States, believing that the return of a Republican to the White House will spell the end for FATCA. In exploring what the election of the new President Elect could mean for the FATCA legislation I’d like to introduce a well-known quote from another noteworthy Republican, and indeed another famous Donald.
“There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.” – Donald Rumsfeld
The Known Knowns
The Republican National Committee (RNC), the political group that provides leadership for the US Republican Party, coordinates fundraising, electoral strategy and promotes the Republican political platform is openly anti-FATCA.
Many global financial institutions have adopted a ‘no U.S persons’ policy due to the regulatory burden imposed on them by FATCA. This of course is making it increasingly difficult for the 9 Million Americans that live overseas, as banks are refusing to open, or in some cases closing banks accounts and other financial products that are operated by Americans. The number of Americans renouncing their citizenship is growing year on year – as US persons abroad find themselves with no other option.
The takeaway from these two points is that FATCA is pretty unpopular with the Republican Party, US Persons overseas and the global financial institutions that have to live with the burden of implementing and complying with the regulation.
The Known Unknowns
The biggest unknown at this stage is Trump’s position on FATCA. This election cycle, more than others in recent memory, focussed on populist issues – the reality, as painful as it is for US persons abroad, is that FATCA just isn’t the sort of issue that wins or loses elections. Furthermore, the only firm policy statement that we have heard from the President Elect is the widely represented ‘100-day plan’ in which there is no mention of global taxation policy.
That being said, Trump’s 100-day plan does take aim at President Obama’s use of executive orders. The President Elect has promised to repeal every single executive order issued under the Obama administration. Obama received much criticism for the use of Presidential Memoranda, which legally speaking are broadly similar to executive orders. The reciprocal Intergovernmental Agreements (IGAs) that allow the exchange of information between other jurisdictions and the United States rest on one such Memoranda. It is unclear at this stage whether Trump intends to undo both the Executive Orders and Presidential Memoranda issued by President Obama, or indeed whether such an act is feasible and/or desirable to implement across the board.
Given the opportunity, will the Republican Party push to repeal FATCA? Critics of the GOP’s stance on FATCA have suggested that their actions thus far may have more to do with pleasing campaign donors than actual legislative change. Furthermore, the complexity involved in both repealing FATCA and replacing it with other tax-evasion legislation may prove undesirable in practice. It is unclear at this stage how important FATCA is to the party from an ideological perspective, from a policy perspective and how it fits into their long-term strategy. Furthermore, the President Elect and the RNC have what could perhaps be described as an uneasy marriage and it remains to be seen how this will affect policy going forward.
The Unknown Unknowns
The nature of the so called ‘unknown unknowns’ is that, well, we don’t know what we don’t know. If you dislike tautological statements as much as I do, the previous sentence will have been an emotional rollercoaster for you. Let me address this issue by wildly speculating about a number of areas in which we may find some of these unknowns.
As a company that deals with the regulatory compliance issues faced by non-US financial institutions, there is one thing that is pretty unclear. In the event that FATCA is repealed, how will the financial industry respond? Will the reduced regulatory burden and the prospect of 9 million potential customers be a reason to celebrate? What impact will the cost of implementing and removing FATCA systems, procedures and policies have on institutions operating in the US market? The biggest unknown of all is – what, if anything could replace FATCA?
Subject Matter Expert
Chris is a subject matter expert in US Internal Revenue Code Chapter 3 (QI) and Chapter 4 (FATCA), OECD Common Reporting Standard & Automatic Exchange of Information (CRS/AEoI) and MiFID II. Chris’ responsibilities include consultation and research, alongside the delivery of TConsult’s Interim Periodic Review (IPR) product and production of content for TConsult's marketing channels.