Transcript Is Available of IRS Hearing on FATCA Relief Regs

PUBLIC HEARING ON PROPOSED REGULATIONS
"REGULATIONS REDUCING BURDEN UNDER FATCA AND CHAPTER 3"

UNITED STATES DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

[REG-132881-17]

Washington, D.C.

Wednesday, April 10, 2019

PARTICIPANTS:

For IRS:

JOHN SWEENEY
Branch Chief
Office of Associate Chief Counsel (International)

CHARLES F. RIOUX
Attorney Advisory
Office of Associate Chief Counsel (International)

For U.S. Department of Treasury:

KAMELA K. NELAN
Attorney
Office of International Tax Counsel

Speaker:

TIM SMYTH
Accidental Americans Association of Europe

* * * * *

PROCEEDINGS

(10:00 a.m.)

MR. SWEENEY: I think we could get going for the speaker who will be speaking. And I just want to let you know you have ten minutes minimum.

MR. SMITH: Yes, no problem. Hello everyone, I'm Timothy Smyth. I've kind of been involved with FATCA and the related international tax issues. I'm not an attorney so I just want to get that out of the way. But I've worked as an activist and kind of public affairs policy advisor for a lot of the — informally for a lot of the different groups that are affected by this. Primarily, people who are U.S. persons and all the various types living outside the United States.

I'm particularly here on behalf of the Accidental Americans Association of Europe which is a very small group and mainly works on lobbying and public advocacy in the European parliament and the European institutions in Brussels and Strasburg. But I'm kind of representing them today in a very informal part-time context. But I think I just wanted to get some of our views and my personal views on the record on this issue.

We're broadly supportive of the changes that are being proposed in terms of the gross basis withholding in the passthrough payment that, I think, kind of just from where I stand and kind of the people I represent stand. These are probably some of the most complex regulations anywhere in the federal government. This has probably been one of the complex regulatory projects that's been undertaken for many years. And I think everyone probably understands that in this room and a lot of other people who follow this issue elsewhere.

The regulations have been in place now, I think, for five or six years, which kind of when I looked up, stunned me. Because it feels like that five or six years working on this issue has gone by very quickly. But I think the thing I feel and kind of the people I represent feel is that the proposed rules are very good, a very good start. But we think in the medium term, there needs to be further adjustment of the regulations. And one of the things, I think, I find important to note is the regulatory authority and again, I think we're very supportive of the proposed changes that primarily affect withholding in the relationship to FFI's.

But that same regulatory authority exists basically that's being used and I believe it's 1.473(1) also exists in 1.473(3) which is the part that deals with specified U.S. person. In our view is that we think that it's time that that same authority that's being used in this proposed rule is also used to adjust the definition of specified U.S. person to make it more compatible with the common reporting standard. And less intrusive and negatively impacting specified U.S. persons who are long term nonresidents of the United States.

And, I'll just point out, the common reporting standard was not in place when the current regulations were put in place like five to six years ago. It is now in place; it is now a very broad standard. I believe there is now a significantly higher number of jurisdictions that are members of the common reporting standard than have enforced IGAs.

So, one view I take of this is that especially one of the things that was mentioned in this rule is it's still a concern of the IRS in the long term. Where does the IGA process lead in the end that there's still of the 200 or so jurisdictions in the world, there's still a significant number that do not have intergovernmental agreements. And I think if you moved the specified U.S. person definition something closer to what the CRS requires, something more focused on U.S. persons resident in the United States, I think you could open up, kind of get some more IGAs in force with jurisdictions that might be more willing to enter an IGA if it's something much more similar to CRS.

Acknowledging the fact that the Executive Branch can't enter CRS on its own without Congress. So, I'm not proposing CRS as a full member but I think there's a middle ground where I think the IGA system could be moved closer to CRS and increase the number of jurisdictions reporting under an IGA model, especially a model one IGA above what is currently. And like I said, there's some very major jurisdictions trying for one which has kind of been in limbo now for five or six years in the IGA process but as a full member of CRS. So, that's just one example.

In terms of the enforcement from the U.S. side, I mean, clearly if you narrow the definition of specified U.S. person, there's going to be people who are no longer being reported, that's a given. But also, in the meantime of the past five or six years, there's also now been a State Department rule, I guess joint IRS State Department rule about passport renewal information is now reported back to the IRS. Especially if people who are nonresidents applying for U.S. passports. I would argue that information coming from the State Department is a lot more accurate in terms of determining nonfilers than the FATCA process. I mean, it's collected by U.S. government consulate employees. That's a much more accurate way than making FFIs try to scope out possible nonreporting individuals who live outside the United States and are not U.S. residents.

The other thing I'll point out is in the existing rules, you already have the deemed compliant FFIs and there's, I think, some different flavors of them. But they see an FFI in all of 98 percent of your customers are within, you know, one country or one jurisdiction and the FFI itself only does business in that jurisdiction, well you don't have to report your nonresident U.S. person clients to begin with. So, if you're a nonresident specified U.S. person living outside the United States and you really, really want to avoid FATCA reporting, you're already going — you're going to instinctively go to one of those deemed compliant FFIs.

So, I would argue the regulations as they are now simply is encouraging a lot of paperwork, a lot of extra compliance on the part of non-specified U.S. persons living outside the U.S. And their FFIs, especially larger ones, are wanting to do business in multiple countries and don't have 98 percent of their customer base as a residence and their home jurisdiction. All you're doing is you're putting a lot of paperwork, a lot of burden on them eliminating customer choice. This is still a lot of issues where U.S. persons outside the United States cannot get financial services from a lot of FFIs or they can get only very limited services from a particular FFI because that FFI is trying to minimize their reporting burden.

So, I guess the point I was trying to make is, I think there's a strong case for using that same regulatory authority in 1.473(3) that is being used and 1.473(1) to modify that definition. And I'll also add that I think it is important to maintain FATCA sustainably because some of the — I mean, already there's been discussions I've been involved with that have been in public litigation.

There's a suit up in Canada that's gone on for many years challenging their IGA with the U.S. as a matter of Canadian constitutional law. And they went to trial at the end of January and one of the things that was brought up was well, the IRS is eliminating gross basis withholding. So, that's a reason why maybe the court in Canada should throw out the IGA because well, there's not really — it's not going to hurt the Canadian FFIs as much if Canada doesn't have an IGA.

Now, a judge is going to have rule on that. That will be a very long process but that is in the air, it is in the trial transcript. And, I think, if you change this definition something closer to CRS, that lawsuit, I think would go away. Because the lawsuit in Canada was very clear. They're challenging only the FACTA IGA, not CRS. They are totally fine with CRS.

So, I just wanted to share my views and thank you for the opportunity to come down here and speak.

MS. NELAN: Thank you.

MR. SWEENEY: Thank you.

MS. NELAN: Is there anyone else that would like to speak?

MR. SWEENEY: I guess that's it.

MS. NELAN: Okay that concludes the hearing. We thank you for coming and sharing your views.

MR. SWEENEY: Thank you very much.

MS. NELAN: And for your participation.

(Whereupon, at 10:18 a.m., the PROCEEDINGS were adjourned.)