Campaigners over the way the U.S. tax evasion-prevention law known as FATCA is being enforced throughout Europe have begun writing to EU officials – and making this correspondence public – to ask why it's taking so long for the EU to respond to questions formally raised more than a year ago over FATCA's compatibility with EU data protection regulations.
Among them has been London-based Mishcon de Reya partner Filippo Noseda, one of the most visible anti-FATCA campaigners globally, who routinely posts his correspondence on such matters, some of it dating back as far as 2016, on the Mishcon website.
His latest letter, pictured left, above, and also available to view on Noseda's Mishcon page by clicking here, is a one-pager addressed to Emmanuel Crabit, a European Commission director who is involved in legal issues. Noseda also copied the letter to officials at the European Parliament, including some on its Petitions Committee; a number of individuals with FATCA-related petitions before the Petitions Committee (PETI); members of the European Parliament, and others.
In it, he asks Crabit for a "meaninful update" on a comprehensive, 29-page letter of complaint he sent on April 3, 2020, which detailed various reasons for concern over the way EU individuals' personal banking data and other information was being sent to the U.S., in compliance with FATCA.
FATCA, officially known as the Foreign Account Tax Compliance Act of 2010, came into force globally in 2014, and obliges non-U.S. banks and financial institutions around the world to report to the U.S. Internal Revenue Service (IRS) key details concerning any accounts above a certain amount that they hold on behalf of any American citizens, living in the U.S. or elsewhere. This is because under U.S. law, all Americans are considered to have tax obligations, even if they don't live in the U.S.
The EU's law on data protection, the so-called General Data Protection Regulation (GDPR) was passed by the EU in 2016, but didn't come into force until May of 2018. An EU body known as the European Data Protection Board (EDPB) was set up to oversee and adjudicate potential issues arising from the GDPR.
As this publication and others have been reporting for years, growing numbers of opponents to FATCA have emerged ever since its inception, with concerns about privacy and the security of the data being transferred among – but not the only – reasons cited.
One of Noseda's clients, for example, known only as "Jenny" (until recently outed by the Financial Times as Jenny Webster) is a U.S.-born, UK resident woman who has been challenging the way her personal financial data is being shared with the U.S. authorities, under FATCA, for years.
Last year Mishcon de Reya, on her behalf, filed her latest claim in the UK's high court, arguing that the breaches of her data protection rights, as result of FATCA, had caused her "personal damage and distress."
'EDPB call for a compliance
check was a year ago'
Also asking for an update from EU officials on FATCA, and these EU officials' ongoing efforts to assess its compatibility with the GDPR, was the Paris-based Association of Accidental Americans, with the assistance of the organization's lawyer, NautaDutilh Luxembourg partner Vincent Wellens.
In an 8-page letter (pictured above, right) dated April 13, and addressed to the European Data Protection Board (EDPB), European Commission, Petitions Committee of the European Parliament, and copied to more than 30 other officials and organizations throughout Europe, AAA president and founder Fabien Lehagre and NautaDutilh's Wellens noted that exactly one year had passed since the EDPB had "invited the EU/EEA Member States to evaluate and, if necessary, review international agreements involving the transfer of personal data to third countries, particularly in the area of taxation."
An informational note annext to this statement "has made it very clear that this call for assessment directly concerned the different FATCA agreements between the individual EU/EEA Member States and the U.S.," they went on.
"Now we are exactly one year later and, at least looking at it from the outside, no significant progress has been made in this matter."
Explained Lehagre today: "We sent the letter to the EDPB and to the national authorities for the protection of personal data because it has now been a year since the EDPB adopted its declaration on international transfers – and to date, at least to our knowledge, [none of these authorities] responded to the EDPB's request.
"This letter was an opportunity for us to inform them of the latest developments relating to FATCA across the Atlantic, as well as to enable us to further develop our argument on the reasons that FATCA is not compatible with the GDPR."
Numerous EU officials have been asked for comment on these letters, and the AXFNJ expects responses will be forthcoming.
FATCA in the spotlight
The questions being asked about whether the way FATCA is being implemented in Europe complies with existing EU regulations on privacy and data protection have been raised with increasing frequency in recent years – and especially, within the last few weeks.
Among the developments considered by some to have been the most significant was a July, 2020 decision of the European Court of Justice known as the "Schrems II" ruling, which struck down the the so-called EU-U.S. Data Protection Shield ("Privacy Shield"), which until then had been the main mechanism used by the EU to protect the personal data of EU citizens when it's transferred to the U.S. At the time, as reported, the decision was seen as a potential "game changer" that had the potential to force Europe's courts to revisit the way FATCA is implemented across Europe.
Also seen as significant was a U.S. Government Accountability Office report published in 2019, which detailed a number of issues having to do with FATCA, which it noted had contributed to a "nearly 178%" increase in the rate of citizenship renunciations between 2011 and 2016.
"Data quality and management issues have limited the effectiveness of the Internal Revenue Service's efforts to improve taxpayer compliance using foreign financial asset data collected under FATCA," a summary of the GAO report's findings noted, adding: "Specifically, [the] IRS has had difficulties matching the information reported by foreign financial institutions (FFIs) with U.S. taxpayers' tax filings, due to missing or inaccurate Taxpayer Identification Numbers provided by FFIs."
This issue of the difficulties the IRS has been having in matching up the FATCA bank account information its receiving from non-U.S. banks and financial institutions with the tax returns of individual U.S. taxpayers reappeared earlier this month, in a U.S. Treasury Inspector General for Tax Administration specifically on the subject of FATCA. As reported, the title of the TIGTA report essentially summed up its overall conclusion ("Additional Actions Are Needed to Address Non-Filing and Non-Reporting Compliance Under the Foreign Account Tax Compliance Act").
A few days before the TIGTA findings became public, IRS Commissioner Charles Rettig drew attention to FATCA and in the process, suggested that he felt there was scope for it to be improved when, in response to a question during a Senate Finance Committee hearing on the subject of "The IRS, the President's Fiscal Year 2023 Budget, and the 2022 Filing Season," he expressed support for the idea of the U.S. "reciprocating" with respect to the information it currently receives from foreign governments about the overseas bank and financial accounts of U.S. taxpayers, under FATCA.
Few if any U.S. officials have previously mentioned FATCA in any way over the years, and when they have, none is known to have expressed support for FATCA reciprocity, which is widely seen as something U.S. banks and financial institutions would vigorously oppose.
Commissioner Rettig also called attention to FATCA, and the difficulties the IRS has been having in making it work, last month, in comments contained in a 21-page prepared testimony that he submitted alongside spoken comments during a Ways and Means subcommittee hearing.
As reported, he admitted, on page 19 of his prepared remarks, that in spite of the efforts being made by non-U.S. financial institutions to comply with FATCA, the IRS had been struggling to enforce it, owing to a lack of resources, and had "yet to receive any significant funding appropriation for [FATCA's] implementation."
These comments were similar in tone to the TIGTA conclusions, suggesting the commissioner may have seen the TIGTA report at the time of his Ways and Means appearance.
'U.S. as rest-of-the-world's tax haven'
FATCA is also seen by some observers as enabling the U.S. to accommodate non-American individuals living in other countries wishing to hide their money from their tax collectors by stashing it in U.S. institutions, since the existence of FATCA is explained as the reason the U.S. has failed to join the OECD's Common Reporting Standard, an automatic bank information exchange regime that most other major countries have signed up to, and which prevents wealthy individuals from attempting to hide their wealth in the financial institutions of other CRS signatory countries.
For these reasons, some critics argue, few officials are keen to be quoted talking about it in any way that might suggest they favored it being replaced by the CRS, or made reciprocal as-is.
In February 2020, the London-based Tax Justice Network organization declared that the U.S. had overtaken Switzerland in its "Financial Secrecy Index", with Switzerland dropping to third place, the U.S. in second place (as it had been in 2018, but behind Switzerland), and the Cayman Islands in the top spot. It was the first time since 2011 when Switzerland didn't rank at the top of its list, the TJN said; in 2015, the U.S. ranked third. (The TJN compiles the index every two years, with the next edition due next month.)
Also in 2020, in a separate 12-page report that looked at the U.S.'s financial secrecy situation specifically, the TJN said that although America had "pioneered powerful ways to defend itself against foreign tax havens, it has not seriously addressed its own role in attracting illicit financial flows and supporting tax evasion", as elites from other countries were increasingly using it "as a bolt-hole for looted wealth".
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