FATCA looks likely to remain a fact of life
Kitty Miv, Editor
12 September, 2016
Kitty's Country Rankings are below, with a description of how they are compiled. This week, as every week, I give out Encomiums to countries which have done Good Things, and award Execrations for countries which according to my highly personal and partial views have done Bad Things.
The apocalypse has been cancelled. Or perhaps it has merely been put on hold. Either way, it is clear that the major economic convulsions that many predicted would be unleashed by a UK vote for Brexit have barely registered on the global financial radar – at least not yet. Indeed, economic data from the UK suggests life goes on more or less as normal.
What certainly isn't normal is the UK's apparent lack of people with knowledge of trade issues, and more specifically the intricacies and nuances of international trade negotiations. In one respect this isn't surprising, since trade matters have been handled at European Union level since the UK became a member of the EU. Yet, I do find it somewhat incredulous that the world's fifth-largest economy, a nation of 60m-plus people, which is home to world-renowned academic institutions and whose economic foundations were historically built on trade, doesn't know anything about trade anymore. Surely there must have been a few Brits working in the European Commission trade department? In fact, I know there was. One at least. His name is Peter Mandelson, and he used to be European Commissioner for Trade.
Anyway, my astonishment aside, this is the reality of the situation the UK finds itself in. And any ambitions it has to establish a global network of free trade deals with the world's large and up-and-coming economies will have to be put on hold until the bigger fish of a new trade deal with the EU is landed. And Britain is under pressure from Europe to get its skates on (ahem), and trigger Article 50. Prime Minister May won't be rushed however. And who can blame her? What coach would send a scratch team of inexperienced players onto the field to meet the champions? A losing one, you'd think.
To Germany now. And what's this? A proposal by the Finance Minister to cut taxes? There must be an election coming up! And indeed there is. Elections to the Bundestag, the lower house of parliament, are due to take place no later than October 2017, and the seemingly unflappable, rock-like Angela Merkel is perhaps facing the first ratings crisis of her long stint in power.
Germany has a budget surplus and is therefore well-placed to afford tax cuts. But while the EUR15bn (USD16.9bn) figure mentioned by Finance Minister Schäuble looks impressive, tax cuts worth that would be equal to just 0.4 percent of Germany's USD3.5 trillion gross domestic product – they're small fry, in other words.
It'd be unwise to expect a reversal of Germany's policy of fiscal responsibility and restraint. The migrant crisis has pushed up expenditure, and Germany remains ever-conscious of its role as the stable foundation at the heart of the eurozone's fragile economy. Germany has a high tax burden, but there is no reason to suppose that the Government, whether a CDU one, a SPD one, or another coalition, will embark on a tax-cutting spree, especially where corporate taxpayers are concerned. The advantage of a policy of stability is that at least taxpayers know where they stand. Although any tax cuts that can be squeezed out of the Government will be a bonus.
Across the pond, and another bill to repeal FATCA was introduced in Congress recently. But perhaps the more intriguing recent FATCA-related development was the temporary injunction against FATCA exchanges granted by Israel's Supreme Court. Has this delivered the mortal blow to the body of the legislation that US privacy campaigners crave? Is it a victory for the rights of the individual against Big Government? Could similar lawsuits in other countries succeed, knocking FATCA IGAs down like dominos? Probably not. It seems the automatic exchange of financial account information between tax authorities is a genie that is too far out of the bottle to be forced back in. The number of FATCA inter-governmental agreements signed, in force, or treated as being in force, now stands at 113. What's more, the number of jurisdictions committed to automatic exchanges under the OECD Common Reporting Standard has surpassed 80, and that number is growing all the time.
It seems that if any meaningful challenge to FATCA's legitimacy is to take to place, then it will happen in the land where the law was enacted. And there remain theoretical grounds upon which it could be contested. House Bill H.R. 5935, introduced by Mark Meadows (R – North Carolina) last week, says FATCA should be repealed because it is unconstitutional. Others have questioned the Treasury's authority to conclude what amount to foreign treaties in the form of FATCA IGAs without Senate approval.
Still, Meadow's Bill seems like a symbolic act of opposition to FATCA, given the point in the congressional cycle he chose to introduce it. There is always the danger/hope (depending on what side of the argument one stands) that a future Republican administration would strike down FATCA if it had Congress on-side. But the Republican presidential candidate, Donald Trump, hasn't mentioned FATCA on the campaign trail, so love it or loathe it, FATCA looks likely to remain a fact of life for the time being.
Kitty's Encomiums and Execrations
Methodology: each week (this is the 147th) one or more countries are given encomiums and one or more are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as + 1 for that country, and each execration counts as – 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany is at minus 2, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to – 1, and another one in week six, dropping to – 2; finally in week 13 it got something right, so it went back up to – 1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, but reverting to neutral territory in the following week, then dropping to minus one in week 50, and back up to plus one in week 51, then to plus two in week 52. Some weeks ago it dropped a place, but then quickly recovered one step. Etc etc.
The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.
United Kingdom unprepared
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