UK tax authority sued again over FATCA

The UK tax authority is facing another legal battle at the high court over supposed breaches of the EU’s data protection legislation due to its cooperation with the U.S. Foreign Account Tax Compliance Act (FATCA). It’s the second time that HMRC has been legally challenged on these claims and by the same claimant, a dual British-U.S. citizen known as ‘Jenny’. Her lawyers at top legal company Mishcon de Reya filed the claim on October 27 2021. The challenge says that the sharing of Jenny’s personal information with the American tax authority, the IRS, was done without her consent – as data privacy regulations set out – and that this has caused her “personal damage and stress.” The issue is being brought as a breach of EU rules because, when the information sharing exercise happened, the UK was still part of the European Union and, as such, subject to the bloc’s regulation, according to the lawyers. Lawyer Filippo Noseda, Jenny’s representative at Mishcon de Reya, said: “Jenny’s claim is symptomatic of the steady erosion of individuals’ data-privacy rights by governments.”

What is FATCA?

FATCA is legislation enacted in March 2010 by the U.S. Government, implemented on 1st January 2013. The purpose of FATCA is to prevent American citizens from evading U.S. tax by using foreign subsidiaries to invest in the U.S. through foreign accounts. FATCA imposes a 30% withholding tax on foreign entities that refuse to disclose the identities of their U.S. clients. Foreign banks and other financial institutions, including foreign insurance companies, must therefore provide the evidence to verify U.S. status within a time limit. Failure to provide evidence within the agreed timescale, or if the individual fails to disclose assets in full in their annual tax returns to the IRS, and the foreign financial institution must treat their account as a recalcitrant account and must withhold all U.S. source income and payments from them and will also be subject to 30% withholding tax.

Highly controversial

This legislation has proven to be highly controversial, being described by critics as ‘the worst law most Americans have never heard of.’ For instance, deVere CEO and founder Nigel Green has previously launched a Washington-based campaign against it. He said: “In my opinion, FATCA, of which I have been a vocal opponent since it was first mooted in 2010, is fatally flawed and discriminatory. Why? Because non-U.S. financial institutions are rejecting American expatriate clients in their chosen country of residence, as FATCA rules and regulations are deemed too arduous and expensive, should clients possess assets exceeding $50,000. Thousands of American expats made the gut-rending decision to renounce their citizenship, to avoid the adverse effects of FATCA. There are other options to consider, but they feel very strongly.”

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