updated 8:46 PM CEST, Jun 30, 2020

‘Policy concerns’ feared to weigh in pending UK FATCA challenge ruling

Last Wednesday, the UK’s Information Commissioner’s Office (ICO) announced that it expects imminently to issue its decision in a closely-watched challenge over data protection violations that a U.S.-born, UK-resident complainant alleges have resulted from the way HMRC has forwarded her personal information to the U.S., in compliance with that country’s FATCA legislation.

Ahead of the decision, lawyers for the plaintiff are bracing themselves, and their client, for the worst.

Nevertheless, they are continuing to press their client's case with ICO officials, according to the lawyer heading up the legal challenge, Mishcon de Reya partner Filippo Noseda.

Noseda and his team say they anticipate that the ICO will allow “policy concerns”, as well as such political considerations as the importance to the UK of maintaining good relations with the U.S., to be taken into account when it issues its ruling in the FATCA matter – even though, they claim, this would be inconsistent with fundamental data protection principles, including those that underpin the EU’s GDPR.

The ICO, which is based in Wilmslow, Cheshire, didn't immediately reply to a request for comment. 

The GDPR (General Data Protection Regulation), which came into force throughout Europe exactly two years ago on Monday, was introduced in an effort to give individuals in the EU control over their personal data, while at the same time establishing a single regulatory framework for overseeing the way information is handled by governments and businesses throughout the bloc.

Mishcon’s Noseda: ICO
takes ‘big picture view’

Noseda’s view that the ICO will find that HMRC hasn’t violated Jenny’s data protection rights – and thus mean that her complaint won't be upheld – in the way that it has complied with FATCA as it has applied to her UK bank account information is based on what he perceives as the organization’s tendency to take a “big picture” approach to data protection issues.

In a letter to ICO official Owen Prendeville on Friday,  Noseda said he had come to believe, based on various decisions the ICO had made in recent months, as well as its defence of an HMRC decision last year to turn down a Freedom of Information request for UK FATCA data (identical to that asked of, and given, under FOI laws to individuals in Canada and Australia), that the ICO intended to “reject our complaint, and is now trying to polish its message to cover its position”.

One reason he thought this, Noseda added, was because of a “puzzl[ing]" reference by the ICO to its needing “a policy view” in order to finalize its decision.

“I thought that data protection was a fundamental right, not a matter of policy,” Noseda added pointedly, in his letter.

In a follow-up letter yesterday, Noseda reminded Prendeville of the scale of data now estimated to be being automatically exchanged around the world as a result of such programs as FATCA and a similar, OECD regime known as the Common Reporting Standard – alongside what he said were growing numbers of serious data breaches that have been reported recently, (and which are being meticulously tracked on Mishcon de Reya’s recently-posted Hacking and Data Breaches List).

Noseda ended this letter by saying: "In light of the scale of the alleged data breaches, the existence of grave concerns raised by data protection bodies in which the ICO was represented, and the ICO’s most recent pronouncements in favour of the fundamental nature of data protection principles before Parliament, we renew our request that the decision in relation to this complaint be signed directly by the Information Commissioner, Ms Elizabeth Denham, in order to ensure proper scrutiny and accountability in the next phases of this process.”

First FATCA challenge over GDPR

As reported, a U.S. born woman who has been identified only as “Jenny”, and who has been a British citizen since 2010, launched her complaint against HMRC last year, in what was said at the time to be the first legal challenge to FATCA since the GDPR came into force in 2018.

Jenny claims that by providing her personal financial information to the U.S. tax authorities in compliance with the U.S. tax evasion law known as FATCA, HMRC is violating her data protection rights, both as a British and EU citizen.

Jenny, who lives in the north of England and who has been described as married and working with deaf students at a university, where she is a research associate, is crowd-funding her FATCA challenge on the CrowdJustice.com website, where, since last September, she has managed to raise some £80,338, from 426 pledges thus far, although she is still some way short of her target of £120,000.

FATCA was signed into law in 2010 as a revenue-providing element of a domestic jobs bill known as the HIRE Act, while at the same time being intended to discourage the use by Americans of overseas bank accounts to hide their wealth.

Known officially as the Foreign Account Tax Compliance Act, it establishes a 30% withholding tax on U.S. source income for any non-U.S. financial institutions that are found to have failed to report to the U.S. authorities the bank account details, including assets, of any of their clients who happen to be U.S. citizens or Green Card holders.

When enforced alongside the U.S. system of citizenship-based taxation, the FATCA regulations mean that an estimated 9 million U.S. citizens living outside of the U.S. are unable to avoid paying taxes to both their country of residence and the U.S., although there are some mechanisms they can use to avoid being taxed twice for the same thing on the same income. 

Nevertheless, expat Americans typically end up spending a significant sum every year to tax practitioners in order to ensure that they don’t make any costly mistakes in filing their tax returns and other required forms, such as FBARs (Foreign Bank Account Reports).

Last year, the Democrats Abroad reported that 61% of some 9,885 expats, living in 123 countries across six continents whom it surveyed, reported paying more than US$500 to file their annual tax returns – "at least twice what U.S.-based Americans spend on average", and that 34% reported that they're spending on average more than US$1,000 every year for help with their U.S. tax returns.

One source earlier this year, citing U.S. government figures, said income from taxes on U.S. residents abroad amounted to only around US$792m a year, forming just a small part of the government’s estimated FY 2020 tax income of US$3.64trn.