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To: Boris Johnson
United States Foreign Account Tax Compliance Act (FATCA)
Please withdraw UK Government consent to cooperate with the US on FATCA implementation
Why is this important?
In 2010, the US government passed the Foreign Account Tax Compliance Act (FATCA) obliging US citizens, regardless of dual citizenships and even though they may not have lived in the US since childhood, to self-report their non-US assets and to pay US tax on foreign income if the foreign tax should be less than US tax. For example, if such persons sell their home, then they are liable for American capital gains tax on the sale as the UK levies no such tax.
FATCA obliges all non-US financial institutions to search through their customer databases to identify those customers suspected of being US citizens and to disclose the account holders' names, addresses, and the transactions of most types of account. It requires foreign financial institutions to require all foreign account holders (not just US citizens) to certify their foreign status.
In 2014, The Economist called FATCA's "extraterritoriality stunning even by Washington's standards."
FATCA potentially affects 173,470 people born in the US by chance but many of whom left the country as small children and have since been resident in the UK and are UK citizens.
Following FATCA's passage, many such "accidental Americans" suffered closure of their bank accounts: a 2014 survey of US citizens in other countries by Democrats Abroad found that 12.7% of respondents had been denied financial services by their banks, making it harder for accidental Americans to live and work in their countries of residence.
Accidental Americans often no owe US income tax, but must spend thousands of dollars in accounting fees to prove that fact, and face potential fines of tens of thousands of dollars for paperwork errors.
Those who have spent their lives planning for their retirement without considering the US tax consequences of the non-US financial instruments they hold may find that US taxation wipes out most of their returns on investments.
UK residents suspected to be US citizens are separated out at their financial institutions for differential treatment, based upon their place of birth and nationality. Discrimination according to national origin is prohibited in most countries and by the European Convention on Human Rights.
American Citizens Abroad, a not-for-profit organization representing the interests of the millions of Americans residing outside the United States, points out that FATCA's problem is citizenship-based taxation. The United States and Eritrea are the only countries in the world which impose taxation and reporting requirements on citizens living abroad permanently.
The Guardian reports that Americans living abroad feel financially terrorized by FATCA requirements. According to research by Democrats Abroad: "These survey results show the intense impact FATCA is having on overseas Americans. Their financial accounts are being closed, their relationships with their non-American spouses are under strain, some Americans are being denied promotion or partnership in business because of FATCA reporting requirements and some are planning or contemplating renouncing their US citizenship”.
The US will not allow accidental Americans to renounce citizenship until they have filed five years’ of tax returns. Due to the rise in applications, the fee for renouncing citizenship was raised by roughly 400 percent in 2015 to $2,350.
According to a recent piece in The Economist, a UK resident who was born in America but moved to Britain as a child, “recently received a huge bill from the IRS [the US Internal Revenue Service], out of the blue, for many years of unfiled taxes. He had not realised that he owed anything; he had always paid taxes promptly in Britain. The IRS was so aggressive that he feared he might lose his technology business; he even discussed divorce with his wife as a way to shield their assets. In the end, he settled for a six-figure sum.”
In 2014, the UK Government entered into an Intergovernmental Agreement whereby financial institutions in the UK report information about US accounts to HMRC. HMRC then provides the information to the US.
The UK government has estimated that the cost to British businesses will be £1.1 billion to £2 billion for the first five years, in order to locate the US citizens. HMRC estimates its own one-off IT and staff project costs at approximately £5m, with ongoing annual costs of £1.4m from this year.
FATCA’s effects on UK citizens who by accident of birth are deemed American means that the UK Government’s cooperation with FATCA must end. The relationship between the British state and its citizens is founded on an implicit contract whereby, in exchange for obedience to the law and performance of their civic duties, citizens have a right to the state’s protection.