The research and advocacy organization Global Financial Integrity is urging Sen. Rand Paul, R-Ky., to allow the Senate to vote on agreements negotiated by the Treasury Department with Switzerland, Luxembourg, Hungary and other countries to implement the Foreign Account Tax Compliance Act, or FATCA, in an effort to ferret out tax evaders.
Senate rules allow any Senator to place a “hold” on legislation removing it from consideration, and Paul has placed holds on bills to implement every tax treaty negotiated since his election in 2010, according to GFI.
FATCA was included as part of the Hiring Incentives to Restore Employment, or HIRE, Act of 2010. Its provisions require foreign financial institutions to report information on the accounts of U.S. customers to the Internal Revenue Service, or a tax on all of the foreign bank’s U.S.-source income will automatically be withheld before being transferred to the bank.
The Treasury Department is in the process of negotiating intergovernmental agreements with over 50 jurisdictions to streamline the process. “The increased bilateral exchange of taxpayer information that these FATCA agreements create are crucial to cleaning up the worldwide shadow financial system, starting right here at home,” said GFI legal counsel and director of government affairs Heather Lowe. “The U.S. should not be a safe haven for the dirty money of foreign tax evaders, just as foreign financial institutions should not harbor the illicit assets of U.S. tax evaders.”
Lowe contended that tax evasion and corruption siphoned $261 billion in illicit outflows from the Greek economy from 2003 to 2009, while draining another $138 billion from Portugal between 2005 and 2009, jeopardizing the economic well-being of Europe, America’s largest trading partner. More directly, according to GFI, tax haven secrecy costs American taxpayers $150 billion per year, just as government budget cuts are rippling through the American economy.
“The implementation of FATCA and the automatic exchange of tax information will go a long way toward curtailing tax evasion in the U.S. and in Europe,” said Lowe.
Last year, Paul was one of a group of senators who wrote to former Treasury Secretary Tim Geithner asking him to explain the initial intergovernmental agreement that the Treasury had drawn up with France, Germany, Italy, Spain and the United Kingdom.
The Group of 20 nations recently reiterated its commitment to making automatic information exchange the “new global standard” and pledging to implement a multilateral system. The five largest European economies also recently announced the formation of a multilateral “pilot project” of automatic exchange, based on FATCA and the agreements those countries have negotiated with the U.S.
Several more European nations have since joined the pilot program, and a number of British Overseas Territories—including notorious tax havens such as Bermuda, the British Virgin Islands, and the Cayman Islands, among others—announced Thursday that they would also be joining the program.
“There is an international movement for automatic exchange and FATCA is the driving force,” Lowe said. “For the U.S., failing to fulfill our end of these agreements would undo all of the progress we have already made on this issue. Global progress should not be thwarted by the whims of one U.S. senator.”
The National Foreign Trade Council and Organization for International Investment, which represent many major U.S. corporations, including the Big Four accounting firms, ExxonMobil, General Electric, and Microsoft, have also called upon Paul to drop his holds and resolve the uncertainty resulting from keeping the treaties in limbo.
In February, the U.S. signed a FATCA implementation agreement with Switzerland to allow taxpayer information exchange, but the agreement cannot move forward unless the Senate approves a tax treaty between the two countries, according to Reuters. Senate inaction on approval of other new or amended tax treaties since 2010 is holding up movement on similar intergovernmental agreements. Paul has put a hold on treaties involving Switzerland, Luxembourg and Hungary.
“Ratification of the agreements has widespread support,” said Lowe. “Sen. Paul should stand with American businesses and American taxpayers and allow an up-or-down vote on the treaties.”