FATCA Meets the Western Wall of Judges in Israel, US

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Judicial challenges to the Foreign Account Tax Compliance Act continue to be rejected by courts in and outside the United States, and thus the burdens on U.S. tax filers with accounts in Hong Kong are expected to continue.

The Hong Kong Special Administrative Region government has acknowledged that customers encounter FATCA related difficulties though it maintains that FATCA implementation is part of the its commitment in global efforts to enhance tax transparency and combat tax evasion, and is in line with efforts adopted in other jurisdictions. Recent developments are discussed below.


No Happy New Year for FATCA Filers in Israel

Weeks before the Jewish New Year, Israel’s Supreme Court crushed Republicans Overseas Israel’s hopes for a happy new year, rejecting a legal challenge to Israel’s implementation of a FATCA information sharing agreement with the United States. The court opined that the requirements of the modern world trump individual rights, and that there is always a need for licensing, regulation, and supervision, and thus does not violate Israeli law. The Israeli parliament had approved regulations to implement FATCA reporting. A legal challenge to FATCA in Canada was rejected last September, with the court declaring that FATCA related collection and disclosure of personal and account-holder information by Canadian authorities is legal.


Republicans Overseas Appeals Lawsuit Dismissal

Following its failed attempt to obtain an injunction and the subsequent dismissal of its claims by the Federal District Court, the plaintiffs in the Republicans Overseas led lawsuit (Mark Crawford et al. v. U.S. Department of the Treasury et al., case number 16-3539, in the U.S. Court of Appeals for the Sixth Circuit) which names U.S. Sen. Rand Paul (Republican – Kentucky), and several current and former U.S. citizens living abroad as plaintiffs, filed an appeal to the appellate court in July. The appellants brief argues that the lower court erred in ruling that none of them have standing to sue, that plaintiffs argue that FATCA, intergovernmental agreements entered into by the U.S. Department of the Treasury and foreign governments, and the Report of Foreign Bank and Financial Accounts impose unique and discriminatory burdens upon U.S. citizens living and working abroad. The plaintiffs legal team is led by James Bopp, the general counsel of the National Right to Life Committee, and he cited the Supreme Court’s 1973 decision in Roe v. Wade as part of its arguments.

The government appellate brief counters that the District Court correctly determined the complaint did not directly link the challengers’ alleged injuries to FATCA, but merely alleged generalized grievances that may be shared with other members of the public. In its reply brief, plaintiffs argued that FATCA’s harms include not just the loss of constitutionally protected privacy, but also financial and security risks and that their proposed amended complaint contains explicit ongoing-injury allegations for each plaintiff.


RO Strategy: Attack Clinton & Trump

Bopp is optimistic the appeal will succeed, as the lawsuit is central to Republicans Overseas anti-FATCA efforts. The organisation does not support the Same Country Safe Harbor advocated by other expatriate advocacy organisations, and it will be difficult for it to work with a Clinton or Trump administration. Bopp reportedly called a Hillary Clinton presidency “100 percent evil”. Michael DeSombre, the Hong Kong based worldwide president of Republican Overseas was a Jeb Bush fundraiser. Last month on a BBC radio programme Republicans Overseas vice president Jan Halper-Hays described Republican presidential nominee Donald Trump as truly psychologically unbalanced, out of control, and as having gone over the top, a departure from her previous view that Trump’s temperament is exactly what the U.S. needs and an earlier commitment to support the nominee. Senator Paul easily won a global poll of Republicans Overseas voters during the primary season.


Individual Lawsuits Also Fail

In a case brought by an individual U.S. citizen resident in Saudi Arabia (Abdullah Saleh Alsheikh v. Jacob Lew, et al., case number 15-Cv-03601-Jst, in the United States District Court Northern District of California), a federal district court recently dismissed the plaintiff’s amended complaint. Similar to the reasoning in the Republicans Overseas lawsuit, the complaint did not sufficiently allege that harm was imminent, as opposed to conjectural or hypothetical, especially as the bilateral Intergovernmental Agreement to enforce FATCA had not yet been implemented.


Taxpayer Advocate Criticises FATCA Implementation

In July, the Internal Revenue Service’s Taxpayer Advocate Mid-Year Report to Congress included a FATCA chapter titled “IRS Implementation and Enforcement of FATCA Withholding Is Burdensome, Error-Ridden, and Fails to Protect the Taxpayers’ Rights” which identified numerous problems with FATCA’s implementation to date. The report also identified the limited IRS resources available to overseas based filers even as the population of U.S. citizens abroad grows, and these taxpayers are facing greater challenges in voluntarily meeting their tax obligations, partly as a result of FATCA, Foreign Bank and Financial Accounts reporting rules, and the Affordable Care Act.


New Legislative Attempts at FATCA Repeal Unlikely to Succeed

At the beginning of September, Representative Mark Meadows (Republican – North Carolina) introduced H.R.5935, a bill that repeals FATCA. Senator Paul similarly introduced FATCA repeal legislation in 2013 and 2015, neither of which were successful. A budget amendment to repeal FATCA introduced in 2015 by Senator Roger Wicker (Republican – Mississippi) also failed. With the limited time remaining in the current Congress, the bill is unlikely to become law.