The European Parliament has published an in-depth analysis that updates a previous report on FATCA legislation and its application at the international and EU level. This includes policy suggestions to address reciprocity issues with the U.S. under FATCA, such as the introduction of blocking legislation that would apply until reciprocity issues are resolved along with a 30% withholding tax on EU source payments to the U.S. to mirror the 30% withholding imposed by the U.S. when FATCA requirements are not met.
7.3. Policy suggestions
This paper concludes confirming the policy suggestions of the Report 2018 and advised by the European Parliament in the resolution of 5 July 2018 that attain to (i) bilateral EU-U.S. policies, (ii) unilateral EU policies, and (iii) multilateral policies in a broader sense. These policy suggestions are obviously impacted by the institutional constraints that have been highlighted in this in-depth analysis.
Bilateral EU-U.S. policies essentially imply the modifications of IGAs to align with GDPR and providing full reciprocity in the transfer of tax data between the EU and the U.S.
Unilateral EU policies are a second-best choice, should bilateral policies fail. There are three main actions in this area.
- The U.S.'s failure to honour reciprocal guiding information exchange could lead to an investigation into the possibility for the EU of enacting "blocking legislation about reciprocity" that would apply until such time as the reciprocity is re-established in relation to FATCA.
- "Blocking legislation about selected items" would apply until such time as certain FATCA criticalities in respect to Accidental Americans are mitigated by the U.S. If the EU were to block the application of FATCA (pending resolution of the outstanding issues surrounding FATCA) and, as a result, the U.S. were to impose a 30% withholding on U.S. source payments to EU financial institutions requested by FATCA, then the EU could apply a mirroring 30% withholding on EU source payments to U.S. financial institutions and their operations in the EU.
- To allow only transfers from the EU of FATCA Data associated with U.S. Persons who are not EU residents until a predefined set of bilateral measures are adopted, for example: (a) renegotiation of IGA to afford reciprocal treatment with respect to exchange of tax information; and (b) establishment of safeguards to data protection under GDPR. This would imply that FATCA would continue to operate in respect to transfers of FATCA Data associated with U.S. persons who are not EU residents or citizens, but there would be standstill clause for transfers of FATCA Data associated with U.S. persons who are EU residents or citizens.
There are also options on the direction of multilateral policies in a broad sense. Automatic exchange of tax data and FATCA were established as multilateral measures in the fullest sense of the elimination of any kind of free rider to a global system of full sharing of tax information among countries. Multilateralism in the exchange of tax information should therefore be revived at EU-U.S. and multilateral level going back to the original spirit of FATCA as an initiator of such multilateralism, meant as a common method to share tax information to counteract tax evasion on a global scale.