Australian financial services firms ‘unprepared’ for FATCA

The controversial FATCA tax legislation – which was introduced by the Obama Administration in 2010 – requires foreign financial institutions to report details of bank accounts held by US citizens and imposes additional reporting obligations on American expatriates.

Australia entered into an inter-governmental agreement with the US on FATCA in April 2014, with Treasurer Joe Hockey stating at the time that the deal would assist financial institutions in meeting their new compliance requirements.

The lawsuit was officially filed in a federal court in Dayton, Ohio on Tuesday, and names the Treasury Department and Internal Revenue Service as co-defendants.

Senator Rand Paul, a 2016 presidential candidate, is listed among the plaintiffs and has long advocated against the initiatives of the IRS regarding its monitoring and oversight of financial institutions.

“[FATCA] imposes enormous economic costs on individuals and financial institutions,” said the official complaint.

“On the most fundamental level, FATCA deprives individuals of the right to the privacy of their financial affairs. On a practical level, FATCA is severely impinging on the ability of US citizens to live and work abroad.”

The suit’s lead lawyer, James Bopp Jr – a former adviser to the Republican National Committee and Mitt Romney’s failed 2012 presidential campaign – said FATCA results in an unconstitutional invasion of civil liberties.

“The president can only rely upon his authority and he has no authority in the Constitution for this,” Mr Bopp told Bloomberg. “We don’t think this has to do with taxes. This has to do with disclosing private, personal information.”

Locally, however, Harry New, a partner at commercial law firm Hall & Wilcox, has warned that many Australian financial services firms are unprepared for FATCA compliance.

“Australian fund managers with US-sourced income may also need to register with the US Internal Revenue Service to avoid FATCA-withholding being charged on US-sourced income,” Mr New said.