updated 11:53 AM CET, Jan 21, 2020

EU revives issue of FATCA information exchange as year-end deadline for banks approaches

With less than two weeks until the end of the year – at which point banks and other financial institutions outside the U.S. have been told that they must supply so-called Tax Information Numbers of all their American clients, or potentially be in breach of the Foreign Account Tax Compliance Act – the European Union has formally urged the U.S. Treasury to urgently address "the problems faced by residents, financial institutions and governments of the EU Member States in relation to FATCA". 

The Accidental Americans Association, which represents individuals who are generally considered to be nationals of other countries but who are regarded by the U.S. to be American, and thus have tax obligations, said on Wednesday that the European Council's letter was significiant because it represented the first time that the full European Union had taken such an action.

Among other detailed recommendations, the letter from the European Council urges U.S. Treasury Secretary Steve Mnuchin to  "lower the cost of renunciation [of U.S. citizenship]" for Americans resident abroad, many of whom are struggling to maintain non-U.S. bank accounts in the countries in which they now live, and of which they are citizens and taxpayers. 

The fee alone to renounce is US$2,350, having been raised from US$450 in 2015, as the numbers of those seeking to renounce began to soar. For many of those considering renouncing, there are other costs to consider as well, including the cost of hiring a U.S. tax specialist to enable them to meet the U.S.'s strict requirements on being tax compliant at the point of renunciation. Those with assets of more than US$2 million, or who haven't complied with their U.S. tax obligations for five years or more, or have pension assets above a certain amount may also have to pay an exit tax.

The EU's focus on the cost and difficulties of renouncing is key because it suggests that the bloc is prepared to stand up for those of its citizens who also happen to have American citizenship, something the accidental Americans have been asking it to do.

Estimates of the number of accidental Americans across the EU range between 300,000 and 500,000.

News of the letter to Treasury Secretary Mnuchin comes a little less than a month after a hearing on  "FATCA and its extraterritorial impact on EU citizens" was held by the European Parliament's Petitions Committee (PETI) in Brussels, at which a number of accidental Americans testified.

As reported, banks in Europe in particular have been warning "accidental Americans" for months that they are in danger of losing their bank accounts at the end of this year, when a "grace period" –   that for the past four years has allowed non-U.S. banks obliged to report to the U.S. under FATCA not to have to supply  the TINs or Social Security Numbers of those of their American clients who don't have them – is set to expire.

Under U.S. law, individuals who have spent their entire lives outside the U.S. and have no plans to return, but who may have been born there, are considered to be American citizens and therefore are obliged to file U.S. tax returns and in some instances, pay U.S. tax on their income.

Until 2010, this had not been a problem for most "accidental Americans", who until that point had lived out their lives unbothered by the IRS, in the countries in which they ended up and of which they had gone on to become citizens and taxpayers. The introduction of FATCA however, for the first time gave the U.S. tax authorities detailed information on many more American citizens living outside the U.S. than it had previously been aware of. FATCA also for the first time enabled the IRS to begin to enforce the U.S.'s unique (and controversial) citizenship-based tax regime.

Although the U.S. has – as the EU Council notes in its letter – updated its "FATCA FAQs" as of Oct. 15 to say that banks in countries that have Model 1 Intergovernmental FATCA Agreements "[are] not required to immediately close or withhold on accounts that do not contain a TIN beginning January 1, 2020", and that the IRS  "will not automatically conclude that the absence of a TIN leads to a determination of significant non-compliance [with FATCA]", the letter to Treasury Secretary Mnuchin makes clear that EU officials are looking for a great deal more. 

For example, the EU said it was with "regret" that it noted "the lack of equivalent reciprocity in exchange of financial account information between the United States and the EU Member States".

It continued: "In Paragraph 3 of Article 6 of the IGAs all EU Member States with Model 1 [FATCA] IGAs are committed to the development of Common Reporting and Exchange Model with the United States.

"The EU Member States with Model 1 IGAs have also committed to working with other jurisdictions, the OECD and the European Union on adapting the terms of the IGAs to a common model for automatic exchange of information, including the development of reporting and due diligence standards for financial institutions.

"We would like to point out that in February 2014, the OECD unveiled a new single global standard for the automatic exchange of information between tax authorities worldwide. Since then, 105 jurisdictions have committed to the CRS MCAA...

"We regret to note that the United States is the only major financial center that has not committed to the Common Reporting Standard."

The letter goes on to say that the Council "would appreciate to be informed of the plans of the Government of the United States to achieve equivalent levels of reciprocal automatic information exchange as well as the schedule for such actions."

The letter, which may be read and downloaded here,  was signed by Terhi Järvikare, director general and head of the tax department for Finland’s Ministry of Finance, on behalf of the Council president's office. It is dated Dec. 3, and is described as having been "agreed by the Council High Level Working Party on Tax Issues". It was subsequently sent to EU member governments on Dec. 11.

AAA's Lehagre 
welcomes EU action

Fabien Lehagre croppedIn a statement on Wednesday, Accidental Americans Association founder and president Fabien Lehagre, pictured left, expressed satisfaction that the EU governments had "become aware of the issue of Accidental Americans, and have decided to defend EU citizens' rights against the extraterritoriality of U.S. legislation".

He added: "I hope Mr. Mnuchin will indicate immediately that he intends to remedy the problem."

Lehagre said he also welcomed "the fact that the EU presidency condemns the lack of U.S. reciprocity [with respect to information exchange] in its letter, and hope that the Council's letter will encourage the European Commission to take action on this matter."

Lehagre noted that the letter to the U.S. Treasury secretary followed numerous meetings between Accidental Americans and top officials at European finance ministries and tax authorities, as well as national and European parliamentarians, over the past five years.

Lehagre founded the AAA in  2017 to represent and defend Accidental Americans "against the extraterritoriality of U.S. law". It currently claims to have more than 1,000 members. 

As reported, it filed a complaint against France in October with the European Commission, alleging that the country was infringing European data protection and privacy law. In March, it filed lawsuits against a number of online banks in France for discriminating against Franco-American dual nationals by refusing to open bank accounts for them because of their U.S. citizenship status.

Banks still warning
American clients to provide TINs 

Anecdotal evidence suggests that while Europe's banks may be aware that the IRS won't come after them in a major way if they continue to have American clients in 2020 who lack TINs and Social Security Numbers, meanwhile, many are still pressuring their clients to get them. 

The Dutch Banking Association, for example, still has a 90-second animated video on the home page of its website  in which it warns such clients of the need to get their U.S. Social Security numbers – if they don’t wish to lose their Dutch bank accounts at the end of this year. As reported, this was first posted during the summer. 

On Oct 30, Brussels-based Belfius Banque SA sent a letter to certain of its clients, a copy of which was seen by the American Expat Financial News Journal, which warns them that they must provide a Form W-9, confirming that they are American, or a form W-8BEN, indicating that they're not, before Dec. 15, citing as the reason the American tax-evasion prevention law known as FATCA.