May 2018
Private Client Cross Border News

The following are some articles on international private client matters which we thought would be of interest to you.  
U.S. Supreme Court Refuses to Hear Challenge to FATCA

U.S. taxpayers residing outside the country and challenging the constitutionality of the Foreign Account Tax Compliance Act (FATCA) suffered a setback in April when the U.S. Supreme Court declined to hear their case. The Court's inaction validates a lower court's earlier ruling that denied the plaintiffs' claims.

FATCA became law in 2010 in the aftermath of the global financial crisis, and was intended to target individuals seeking to unlawfully avoid paying taxes by hiding assets outside the country. The broad scope and reach of the law's reporting requirements on both individuals and foreign institutions has resulted in unintended consequences, however, such as overseas financial institutions refusing to do business with American expatriates or anyone with U.S. tax reporting obligations.

A number of individuals challenged the law on the basis that it was an unconstitutional invasion of privacy, citing injuries such as the "intense impact" the law has on overseas Americans . "Their financial accounts are being closed, their relationships with their non-American spouses are under strain, some Americans are denied promotion or partnership in business because of FATCA," the challenge stated.

However, the U.S. Court of Appeals for the Sixth Circuit ruled that the challengers didn't have standing to bring their claims because those injuries resulted from foreign financial institutions' voluntary and independent actions, rather than the Treasury Department's "determinative or coercive effect" on those institutions.

Organizations that supported the unsuccessful court challenge, including Republicans Overseas, have vowed to continue fighting and are seeking to rebuild their case with a new set of plaintiffs, though it could be years before they are able to gain a new hearing before the courts.

The push to repeal or significantly scale back the reporting burdens imposed on U.S. taxpayers living overseas has been fought in Congress as well as in the courts. Senator Rand Paul (R-KY), who was also part of the unsuccessful lawsuit, tried to include FATCA repeal in tax reform legislation last year, noting that this was included in the GOP election platform in 2016. Despite the efforts of Paul and a handful of other lawmakers, however, the legislative effort also failed and the tax bill passed without changes to FATCA.

While last month's Supreme Court decision does not change the landscape for those subject to FATCA's reporting requirements, it does serve as a timely reminder to work with your qualified tax advisors to ensure you remain compliant with your reporting obligations.

Mounting pressure in Europe to name U.S. a tax haven

Momentum is building within the European Parliament for the EU to formally name the United States a tax haven if it doesn't adopt the common reporting standard from the Organization for Economic Cooperation and Development and force states like Delaware, Nevada and South Dakota to revise rules allowing company owners to remain confidential. The consequences of such a designation could eventually include increased reporting burdens for companies operating in the U.S., and additional coordinated sanctions from EU member states.

For months, the EU has investigated U.S. tax rules, and those efforts intensified after the U.S. passed sweeping tax reform in December. Placing the U.S. on the EU's blacklist would put it in the company of nine other countries that the bloc considers to be noncooperative jurisdictions. That list currently includes: American Samoa, Bahamas, Guam, Namibia, Palau, Samoa, Saint Kitts and Nevis, Trinidad and Tobago, and U.S. Virgin Islands.

There are those within the European Parliament that believe the U.S. at the very least belongs on the EU's "graylist" of countries that don't meet the bloc's transparency and corporate tax standards. Some MEPs suggest the fact that the U.S. isn't already on the EU list shows that the process is political, with many EU member states not wanting to give the appearance of challenging the Trump administration for fear of the complications that may arise. There is concern within the European Parliament that if something isn't done about the situation, it will undermine the credibility of the EU tax haven list.

Recent changes to U.S. tax laws have raised concerns within the EU that the country is defying the global move to curb multinational tax avoidance. EU member nations asked the OECD Forum for Harmful Tax Practices to investigate several U.S. policies, such as the base erosion and anti-abuse tax. In addition, the European Commission is considering launching a WTO complaint against the U.S., alleging that it breaks international trade rules. The commission is looking specifically at the deduction for foreign-derived intangible income, as well as the requirement that U.S. shareholders of controlled foreign corporations pay tax on their global intangible low-taxed income. The EU is concerned the provision could be used as an illegal subsidy, as the tax to be paid would be lower than the regular tax otherwise due on other sources of income.

Experts also point to the Big Four accounting firms as major contributors to global tax avoidance, claiming that all four have played a role in helping hide money in offshore havens. In addition, the European Parliament is investigating the tax policies of major digital companies such as Facebook and Google.

Individuals with interests in both the U.S. and Europe should monitor the situation and seek assistance from qualified professionals to ensure continued compliance.

We thank you for taking the time to read our newsletter.  If we can be of service please do get in touch by e-mail or telephone.  


Jack Brister and Alicea Castellanos
Co-Founding Partners
International Wealth Tax Advisors


This e-newsletter is published by International Wealth Tax Advisors, LLC (IWTAs) and is not intended to be, nor should it be used as a substitue fo specific tax advice on any matter or set of circumstances.  It does not purport to be comprehensive or to render tax advice and is solely intended to provide general information for the clients and professional contacts.