Be Careful Of Faulty Logic Claiming FATCA And The CRS Are Similar: Seven Ways They Are Not

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Prologue

For those more interested in logic than in FATCA, you will find a discussion of the logical fallacy here.

Introduction

Last week I participated in a group discussion about FATCA and its effect on Accidental Americans. It’s difficult to have a discussion about FATCA that doesn’t include the CRS (“Common Reporting Standard”). Neither FATCA nor the CRS is well understood. That said, an introduction of the CRS into a discussion about FATCA detracts from a consideration of how FATCA impacts Accidental Americans (and others). Furthermore, there is a generalized assumption that the CRS is a positive development. Associating FATCA with the CRS enhances the “illusion” that FATCA is also a positive development.

In part, the discussion assumed that:

– FATCA (U.S. “Foreign Account Tax Compliance Act”) and the OECD CRS (“Common Reporting Standard“) were similar kinds of information exchange agreements; and

– To attack/criticize FATCA would be to criticize and have the effect of weakening the CRS.

These are absurd claims which are based on faulty logic. The faulty logic is that because FATCA and the CRS overlap in one aspect that they are functionally equivalent in intent, effect, purpose and other aspects. The argument appears to be based on the following reasoning:

FATCA requires the transmission of account information from one country to another.
The CRS requires the transmission of account information from one country to another.
Therefore, FATCA and the CRS are the same.

This form of reasoning is equivalent to:

Cats have four legs.
Dogs have four legs.
Therefore, Cats are dogs.

(Presumably even the most ardent supporters of FATCA would see the absurdity of the above example.)

Seven* reasons that FATCA and the CRS are very different include:

1. The CRS requires the automatic EXCHANGE of information from one country to another. FATCA is not reciprocal – there is NO EXCHANGE of information – rather there is a one way flow of information to the United States.

2. The CRS is the result of a multilateral agreement in which participants voluntarily agree to automatically perform due diligence and transfer information to the other signatories to the agreement. At best FATCA IGAs are bilateral “agreements”, forcibly imposed by the USA on other countries.

3. The FATCA IGAs allow the U.S. to impose significant sanctions against the non-US country for noncompliance. The CRS does not impose sanctions on a country for the failure to comply.

4. FATCA mandates the transfer of information from a country where the individual typically DOES reside (think Americans abroad) to a country where the individual does NOT reside (the United States of America). The CRS mandates the transfer of information from a country where the individual does NOT reside to a country where they the individual DOES reside.

5. FATCA facilitates – by claiming the tax residents of other countries as U.S. tax residents – the expansion of the U.S. tax base into other countries. The CRS does not expand a country’s tax base into other countries.

6. FATCA is the U.S. enforcement mechanism for its unique practice of “citizenship taxation” (enforcing U.S. taxation on the residents of other countries). The CRS is a tool to enhance the enforcement of “residence-based taxation” on the residents of their own countries.

7. FATCA results in the United States receiving information from other countries, but giving little or no information to those other countries in return. The CRS results in each country giving and receiving information in return. As a result, FATCA encourages the use of the United States as a tax/privacy haven for residents of all countries. The CRS impedes the use of CRS countries as tax/privacy havens. (For an excellent analysis of this point see: “What You Give and What You Get: Reciprocity Under a Model 1 Intergovernmental Agreement on FATCA” by Professor Allison Christians.)

Conclusion: It’s reasonable to conclude that the differences between FATCA and the CRS are far greater than the similarities. The benefits of FATCA should be considered independently of and without regard to the CRS! (For more about FATCA see: “The Little Red FATCA Book“.)

*Speaking of the Number Seven …

Can you associate each of the “Seven Deadly Sins” with one of the seven differences between FATCA and CRS?

Lust, Gluttony, Greed, Sloth, Wrath, Envy, Pride

John Richardson – Follow me on Twitter @Expatriationlaw

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