Buried in an ostensible jobs bill signed by President Obama last year is a little-noticed job-destroying government regulation that threatens to trigger a massive outflow of capital from the American economy.
See also: FATCA means Americans will pay more for things like Toilet Paper
The US economy is in bad shape. Many want the federal government to fix it — to end the deficits, create jobs and get America back onto the track of growth and stability. President Obama came to Washington with great promises: to restore international respect for the United States and to bring back the jobs. When signing the HIRE Act of 2010 on March 18, 2010, President Obama said:
A consensus is forming that, partly because of the necessary — and often unpopular — measures we took over the past year, our economy is now growing again and we may soon be adding jobs instead of losing them. The jobs bill I’m signing today is intended to help accelerate that process.
Now the HIRE Act of 2010 contains a time bomb called FATCA (Foreign Account Tax Compliance Act), which has indeed accelerated a process. Unfortunately that process is not job generation but job destruction caused by an exodus of capital from the United States. Investment means jobs; a departure of investment capital means job losses. Thus, the HIRE Act is really the “FIRE Act”.
The Background of FATCA and FBAR
FATCA (Foreign Account Tax Compliance Act) is the brood of FBAR (Foreign Bank Account Report). FBAR requires that US persons divulge foreign accounts to the Treasury Department, but few knew about or ever complied with it (see When Government turns Predator). To stanch the bleeding of US capital into secret bank jurisdictions like the Cayman Islands and Switzerland, Congress introduced FATCA into law as part of the HIRE Act. FATCA requires that Foreign Financial Institutions (FFIs) reveal the accounts of US persons to the IRS. The FFIs will then have to collect tax withholdings for the IRS from these clients. If by January 1, 2014 the FFI is unwilling to reveal their US clients’ accounts, the IRS will impose a punitive 30% withholding on all payments to the FFIs, on dividends, interest and gross sales of stocks, bonds, and financial derivatives.
A sample transaction
Let’s suppose a foreign investor trades stocks on a US exchange, but his broker is FATCA non-compliant. One day he buys 10,000 shares of XYZ at $25 per share, and the next day, he takes advantage of a nice uptick of $1.00 in XYZ and sells at $26 per share. He makes a tidy profit of $10,000. But because his broker is non-compliant, the IRS now withholds 30%, not of the profit but of the gross proceeds of the sale! So the client now receives the sum of $260,000 minus 30%. The foreign investor is unhappy because his $250,000 investment has become $182,000. If he wants his money back, he must file a US tax return.
No investor would accept such conditions. Hence, an FFI must either comply with the invasive regulations of FATCA or simply abandon the US markets.
Are FFIs likely or unlikely to comply with FATCA?
After some study, FFIs have warned that the costs of FATCA compliance will be in the hundreds of millions and likely in excess of whatever taxes that the IRS could gather through its enforcement (not that the IRS cares about that!). It is likely many FFIs will simply choose to leave the United States, taking their clients’ money with them. In an open letter, “Farewell America,” Wegelin & Co., a private Swiss bank, cited their reasons for leaving the United States: excessive regulations, tax issues, and above all, the insolvency of US government. Now add the expense of FATCA, and many other FFIs are going to follow Wegelin’s lead. American Citizens Abroad has cited Japanese and European FFIs as indicating a strong likelihood that they would pull out of the United States.
FFIs could also face privacy lawsuits from affected customers. Canada’s privacy laws, for example, may not permit banks to divulge clients’ account information, for compliance is voluntary. Thus, Canada and several other countries would probably require a change in their privacy laws before their FFIs could lawfully comply with FATCA.
The Unintended Consequences of FATCA
(1) FATCA is causing resentment amongst US allies.
FATCA’s enforcement of US tax globally has resulted in serious alarm and backlash. FATCA is a clear violation of President Obama’s campaign promise on July 2007:
To renew American leadership in the world, I intend to rebuild the alliances, partnerships, and institutions necessary to confront common threats and enhance common security. Needed reform of these alliances and institutions will not come by bullying other countries to ratify changes we hatch in isolation. It will come when we convince other governments and peoples that they, too, have a stake in effective partnerships.
FATCA is an attempt to impose unilaterally the collection of US taxes without consideration of the laws and the rights of sovereign nations, and that makes it bullying of the worst kind. In response, some FFI’s are already turning away US citizens and closing their existing accounts; their business is not worth the hassle anymore.
(2) FATCA is causing resentment amongst US citizens abroad.
US citizens abroad, numbering about six million, would normally be America’s good-will ambassadors. But they have become angry because of the threat of excessive FBAR penalties. Those who thought they could ignore FBAR now dread FATCA, which will force their FFIs to tattle on them. An increasing number of Americans are renouncing their US citizenship. The US consulates have had so many requests for renunciation that they have started arranging group sessions, like the one at the US Consulate in Toronto in October. Moreover, some Americans abroad have pulled all of their investments out of the United States and are also planning their vacations to non-US destinations, not from anger alone but also from fear that border guards will arrest them and that a computer system will soon link the IRS to border enforcement.
(3) FATCA will result in a massive flight of foreign investment capital.
Richard W. Rahn writes in the Washington Post that FATCA has already sent foreign capital fleeing. He claims that the people running Washington are “mental midgets” unaware of how their policies affect the economy. He estimates that FATCA will cause the departure of an estimated $14 trillion of private foreign investment, destroying as many as 10,000,000 jobs in the United States.
Conclusion
By signing the HIRE Act with its FATCA provisions, President Obama has bullied our allies, penalized FFIs, alienated many American citizens and seriously jeopardized any possibility of an economic recovery. Apparently, Mr. Obama’s ideological predisposition in favor of taxes and against wealth blinds him to a balanced approach to the economy and its problems. FATCA’s imposition on FFIs is hegemony of the worst kind. Foreign investors are interpreting FATCA as a sign of the desperation that often precedes the imposition of capital and currency controls. In an investment climate now dominated by fear, capital flight is inevitable. FATCA only ensures its arrival and it will exaggerate its effects.
American Citizens Abroad reaches the following conclusions regarding the legislation:
FATCA legislation is predicated on the faulty assumption that foreigners throughout the world with no predisposition to favor the U.S. will react positively to its attempts to convert them into unpaid IRS agents. Faced with similar investment and personnel options without the legal jeopardy and financial risks, reasonable people will choose non-U.S. alternatives. FATCA implementation will constitute a major disruption of the entire international financial world as we know it today. Reasonable persons and entities will develop effective antibodies to this perceived infection, in ways too numerous and manifold to predict. What can be predicted is that the cumulative effect of this legislation will be a major blow to U.S. economic interests and prestige. At stake for the United States is the potential loss of trillions of dollars of investment, the opportunity for American companies and financial institutions to compete in a competitive global environment and the possibility for American citizens residing overseas to survive and thrive. In brief, the economic future of the United States.
In a time when government has caused what may be irreparable economic problems, we don’t need “help” like this. Mr. Obama, please stop helping us.
Peter W. Dunn blogs at the Righteous Investor
NB: The above article appeared in the American Thinker. I want to thank Monty Pelerin for his many helpful suggestions to improve this article. Petros
The world wide regime is coming…
https://twitter.com/#!/FBAR_Compliant/status/181944338211803136
Here is a good readable analysis of the current state of FATCA re pension plans, and retirement funds:
http://www.mccarthy.ca/article_detail.aspx?id=5798
“More on FATCA … and More to Come: The Internal Revenue Service and Treasury Department Release Proposed Regulations”
April 2, 2012
AUTHOR Nigel Johnston
…………”Canada was not a party to the Joint Statement, but it is understood that there are ongoing discussions between Canada and the United States relating to the application of FATCA, having regard to:
the relatively large number of U.S. individuals who reside in Canada;
the fact that Canada is not a low-tax jurisdiction; and
the fact that the Canada Revenue Agency (CRA) already automatically exchanges information with the IRS with respect to certain payments made to persons with U.S. addresses. Publicly available documents indicate that the CRA automatically exchanges details of payments made to U.S. addresses and reported on Canadian NR4 forms such as dividends, interest and trust distributions. However, as U.S. taxpayer ID numbers are not collected in Canada, the information provided is not associated with U.S. taxpayer ID numbers that would facilitate matching. It is also understood that there is no exchange of information relating to proceeds from the sale or other disposition of property. In addition, payments to entities in third countries that may be owned by U.S. persons are not reported.”………………….
It needs to be read in entirety to appreciate the details.
Here is another personal story on extraterritorial taxation and US ‘persons’ – published in an attempt to bring public attention to the issues:
““The reason I want this in [theVAULTmagazine] is for other people to know about it.””
Uncle Sam Wants You…For U.S. Tax Evasion
Posted on April 14, 2012 by Mary
BY SUSAN THOMPSON
http://www.thevaultmag.com/archives/2137
The GAO knows that the FATCA for and duplicative reporting re FBARs is a problem, but they’re not going to do anything substantial about it – they admit they don’t even have any numbers to assess how many filers would be affected. “data are not yet available to determine the number of filers subject to these duplicative reporting requirements.” Oh really? What about all those robust imaginary numbers of US taxpayers abroad that the IRS is using? If you don’t know how many would be affected, then how can you decide that it is necessary to do this at all?
http://www.gao.gov/products/GAO-12-403
“What GAO Found
Some of the information requested on the Form 8938 and FBAR is duplicative. Both forms ask for the same or similar information on the filer, foreign financial accounts, and financial institutions where accounts are held. Form 8938 asks for additional information not required by the FBAR, such as other foreign financial assets and income. Since the Form 8938 is a new requirement beginning after 2011, data are not yet available to determine the number of filers subject to these duplicative reporting requirements.
A variety of tax commentators, taxpayer representatives, and individuals stated that these duplicative reporting requirements have created confusion. They report being unclear about what and how information should be reported on both forms. Neither form provides filers any explanation as to why duplicative reporting is necessary, where the duplication occurs, or how the information being requested is the same or different.
Without data on Form 8938 filers, the benefits and costs of taking actions to reduce duplicative reporting cannot be determined. When Form 8938 filing data becomes available, Treasury’s Office of Tax Policy, IRS, and FinCEN would have the information needed to assess whether cost-effective steps could be taken, including allowing filers who would normally have to submit both forms to substitute the information reported on one to meet the requirements of the other.
Why GAO Did This Study
This letter formally transmits the briefing we gave on February 1, 2012. We gave this briefing in response to a Congressional request that we assess potential duplicative foreign-account reporting requirements under the Foreign Account Tax Compliance Act (FATCA) for the Internal Revenue Service (IRS) Form 8938 and under the Bank Secrecy Act (BSA) for the Foreign Bank Account Report (FBAR).
The objectives of the briefing were to (1) determine to what extent, if any, the reporting requirements on the FATCA Form 8938 and FBAR are duplicative; (2) assess the potential effects that any duplicative reporting requirements have on filers; and (3) identify and assess opportunities, if any, to cost-effectively reduce or eliminate the burden that any duplicative reporting creates while maintaining the usefulness of the information for tax-administration and law-enforcement purposes.
What GAO Recommends
We are recommending that the Secretary of the Treasury direct the Office of Tax Policy, IRS, and FinCEN to (1) revise both the Form 8938 and FBAR instructions and related guidance to explain the extent to which duplication exists (for example, instances where account-related information requested on the two forms is the same or different) and the circumstances in which filers are, or are not, expected to comply with both reporting requirements; and (2) as data become available, determine whether the benefits of implementing a less-duplicative reporting process exceed the costs and if so, implement that process.
For more information, contact James R. White at (202) 512-9110 or whitej@gao.gov.”
Apparently, it is okay when the US wants to invent and impose unreasonable tax and reporting measures like FATCA on the world, but if another country does it, Timothy Geithner is ready to leap into the fray on behalf of the corporate interests of the US:
http://www.ft.com/intl/cms/s/0/ad1f75be-8a6e-11e1-93c9-00144feab49a.html#axzz1sk0J8l5d
April 20, 2012 12:21 am
“Geithner presses India over tax plans”
By James Politi in Washington
“Mr Geithner specifically pointed to “certain tax provisions” in India’s budget that had “raised significant concern among US industry and dampened enthusiasm about India’s investment climate”. Mr Geithner also said that the US Treasury was “examining India’s proposed tax provisions to determine their impact on the US-India bilateral income tax treaty,” the Treasury official said. ”
……………
“The unprecedented nature of this amendment sets a particularly poor precedent, and, consequently, we believe it essential that the US Treasury speak out so that other countries might be dissuaded from enacting similar policies,” said a letter from twelve US business lobby groups to Mr Geithner earlier this week.”………..
Who will profit from FATCA? – see below re :””The huge sums of money associated with FATCA are a gold mine for compliance professionals.”…….
May 1, 2012, 1:37 PM
“FATCA Creating A Compliance Gold Rush”
By C.M. Matthews
……………….”The huge sums of money associated with FATCA are a gold mine for compliance professionals. Indeed, the big four accounting firms have all rushed into the fray, prominently displaying FATCA sections on their websites (here, here, here and here). Smaller companies have also joined the rush.”………..
“I can not tell you how much time I spend on this,” Zimiles said. “This is all these guys are talking about right now.”
Zimiles said that prior to FATCA most of her work with financial institutions focused on anti-money laundering due diligence, commonly referred to as AML compliance. Although AML still takes up a good chunk of her time, FATCA is the new elephant in the room, Zimiles said. Her firm is currently helping banks identify which of their pre-existing accounts belong to Americans. The next task will be developing systems to screen new customers, she said…..”
…………….”The senior compliance officer said that his bank was prepared to spend millions on outside consultants and technology upgrades.
“We’re scared to death, so we pay them a ton of money,” he said.”
excerpt above from:
http://blogs.wsj.com/corruption-currents/2012/05/01/fatca-creating-a-compliance-gold-rush/
http://worldradio.ch/wrs/news/switzerland/some-swiss-banks-make-american-clients-a-casualty-.shtml?30738
Tuesday, 22 May, 2012
‘U.S. bank clients casualties in an ‘economic war’?
When the CEO of Switzerland’s biggest bank calls tax disputes with the United States and other nations “an economic war” people take notice.’
@AllCanadians, has anyone tried contacting the Council of Canadians to get them fighting with us?
From their website it sounds like they could be an excellent ally. Founded in 1985, the Council of Canadians is Canada’s largest citizens’ organization, with members and chapters across the country. “We work to protect Canadian independence by promoting progressive policies on fair trade, clean water, energy security, public health care, and other issues of social and economic concern to Canadians.” FATCA, FBAR and the US citizenship based taxation is certainly an economic concern. I couldn’t find a search engine on their site, so don’t know if they’ve been engaged on this or not. http://www.canadians.org/
Thought this would be a good time to bring this post by Petros back into the lime light, with a comment.
This morning, I just discovered another blog. This one written by an ex CRA agent, so knew it would appeal to you Canadians. Great name for a blog. In-Tax-icating.
Anyway, in this post he/she talks about 2 unintended consequences of FATCA along the same lines has we have been discussing there. Recommend you read to see the take on the subject.
FATCA Fallout: This was NOT what the IRS intended with the upcoming FATCA Regulations
Now, I couldn’t help myself, but bring up a couple other consequences that might not be apparent to this writer, and of course, wanted to point them back to Isaac Brock as a source of better knowledge. The comment was lengthy, and is in moderation. Don’t know if it will be allowed the light of day, but I tried to abide by the rules with No name calling. Here is what I wrote. Petros, I shined the light on you! 🙂 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Thanks for this expanded narrative on unintended consequences. You are on the right track, but… there is always more to the story, so let me add some that you may not have considered.
I too have been following FATCA closely, but have been following since pre FATCA times when the IRS launched its 2009 OVDP (offshore Voluntary Disclosure Program) now morphed into the 2011 OVDI or “I” for Initiative.
This program was started to go after the US homeland offshore tax evasion of Rich Whales seen to be hiding income and funds in secret offshore accounts. (Who knows if that $100 Billion is right. It is a WAG) The nature of the program was that it swept up thousands of Expat and new immigrant minnows into the net who were in benignly non compliance of FBAR requirements (who would have known?) and income reporting generally not done due to unawareness of the unique nature of US Citizenship tax.
The FBAR penalties were the bludgeoning tool of choice (pulled from the 1970s anti terrorist statutes) to force compliance suddenly for something long ignored even by professional practitioners, let alone minnow Expats and immigrants.
This is the opposite of what the CRA does with it’s voluntary programs. Your program is more rationale and civil. You want the taxes and the interest for failures, but you don’t assert harsh penalties for old statutes if a person comes forward voluntarily and reports and pays up. That isn’t how the IRS (International Revenue Service) operates.
With disclosure they administer severe punishment too. It is the American Way.
The IRS dealt with Minnows harshly in a “one size fits all” regime and extracted draconian penalties that were all out of proportion for the “so called” failures. The IRS trumpeted the success (journalist scribes repeated in news stories without question) and Congress moved on to double down with FATCA under the justification that this would create $8.5 billion in new revenue over 10 years? What? That little for all this fuss?
Now you may have missed this Reuters story, but there were a few of those abroad that seethed about this overreach and IRS application of penalties for failures. Here is a shortened link for your reference. http://reut.rs/uwDMt9
I got caught out by this. Tried to do the right thing, and when through a 851 day process you wouldn’t wish on Kim Jong-il. I published my entire story of what it is like to be on the OVDP fish fertilizer processing belt. Not fun at all. A very expensive process in both $$$ and LCUs (life credit units)http://bit.ly/KLx6NL
I also published some advice for those in Canadian (or in the US) who think they had to join the OVDI. It is called “OVDI Drudgery for Minnows”:http://bit.ly/NdQXGZ
These OVDP/OVDI practices plus increased publicity about FATCA (indeed a global system in the creation-GATCA) caused a group of Canadians to create a blog dedicated to discussing the issues and countering what limited and wrong narrative there is in mainstream press in Canada about requirements.
This was to counter the fear factor being marketed by Tax professionals in Canada to the million or so US. Citizens that need to “come clean” or “fess up”, implying that all living in Canada were active tax cheats that needed their expensive help. They must confess their sins and be compliant with these newly enforced Citizenship taxation and reporting requirements, regardless of their circumstances. Pay us, and pay the IRS was the message.
They created a blog called the Isaac Brock Society. It first started as a .com address in December of 2011 and has just repatriated to .ca address. Here is the link to what it is all about, if you haven’t already discovered it.http://bit.ly/KVrjX3
The web master, Petros, has gotten some recent press, as he is one of the non rich that are renouncing their citizenship as another of the unintended consequences of FATCA and IRS jihad. Here is a link to the Reuters story titled: “Tax time pushes some Americans to take a hike” http://yhoo.it/J7mJyR
There are a lot more of them in Canada actively pursuing this route. Look at the 858 comments on this thread if you want to see interest in this subject.http://bit.ly/LQZTOK So this is a 3rd unintended Consequence, middle class Average US citizens cutting the ties that bind.
If you are living over seas, and just an average middle class person, the cost of passport ownership just went very negative. So this is a story about more than the Rich like Saverin. So the narrative is switching a bit, from the Rich expatriating, to the average US Expat handing in their passport. BTW, here is Peter Dunn from his story as was interviewed here: http://bit.ly/MZq0I7
Coming back to FATCA, here is a 4th unintended consequence:
Did you know that there is also the domestic equivalent of FATCA, which I refer to as DATCA, where the IRS by its regulatory powers is now forcing US banks to turn over data on its non residents who have accounts in the US to the IRS? This is so it can use this DATCA information as a leveraging tool to force FATCA down the throats of the world. It helps by getting recalcitrant Foreign Countries on board, as they think they are getting some receprorcity, false though it is.
There has been push back by the very members of Congress that voted for FATCA in the first place. Lovely irony. Here is a link to a recent Op-ed on the Miami Herald by the Florida Bankers Association and my comments / email to them. In their Op-ed complaints, they failed to connect the dots between FATCA and DATCA. bit.ly/LvLvP7 If they don’t like DATCA they need to repeal FATCA. It is that simple.
Finally, to your point about a global system, you are very right in your analysis. Others have seen this coming too, and yet, surprising there is NOTHING being reported in the US media.
A Global #FATCA is in our future: http://bit.ly/JPZQ3C
Oh… This just out this last yesterday on the Financial Post in Canada.http://natpo.st/LMYlVR Read the comments:
Finally. I love your blog name.
Wonderful post @JustMe, and also, thank you for taking on the ‘Canadian’ angle!
This is from May, but not posted here yet:
http://economia.icaew.com/Technical-update/Tax/FATCA-attackFATCA attack
28 May 2012
Christopher Alkan outlines why the Foreign Account Tax Compliance Act is turning financial companies into US tax collectors – and turning them against the US government’
…..”Much of the frustration over the new rules is being directed at the US authorities. Tax collection was not the only goal of FATCA. Even so, it was a leading motive according to Senator Max Baucus, who sponsored the bill. Speaking in support of the act in 2009, he warned that “tax
evaders cost our country tens of billions of dollars every year in unpaid taxes,” money that, he said, “could be used in any number of other important areas, such as reducing our fiscal deficit.”
Yet the US has been neglecting easier ways of raising revenue. The Internal Revenue Service had its budget cut by 2.5% for 2012, forcing it to lay off more than 5,000 tax collection staff. Given that each tax collector generates three times their salary in extra revenue, it seems like a bad time to be downsizing the IRS. In contrast, the FATCA rules may generate only $1 for each $4 that global firms spend in implementing the rules – a terrible deal for financial businesses.
Finding people to speak in favour of the new rules is hard. FATCA will hurt the finance industry while providing little benefit to the US.”…..
Another blog I found last night, blogging about FATCA Fallout. It is out of Toronto. It appears to have borrowed liberally from In-Tax-icating. I posted a similar comment as above but cleaned up some typos and other language… http://bit.ly/LiE7SR
Have you seen the latest articles about the IRS going after foreign banks? Sorry if it’s already been reported here. The latest are Lebanon and Liechtenstein.
http://www.mahanyertl.com/mahanyertl/are-lebanons-days-as-a-bank-secrecy-haven-over/1775/
http://www.digitaljournal.com/pr/748664
The second article says “Owners of accounts at LLN have a very short window to apply for the OVDI“
Looks like they’ll need to increase the number of examiners… Also, I wonder what they’re going to do with all the data they have about the UBS, HSBC, and now these banks. Some of them they prosecuted, some of them entered OVDI. I wonder if they’re going to look more closely at the tax return of the remaining ones and audit the ones that they think they might extract the most taxes and penalties. That is a lot of data.
For those of you French speakers, I found this Canadian article in French:
http://www.conseiller.ca/nouvelles/des-regles-fiscales-americaines-lourdes-pour-les-institutions-financieres-36291
When you see how well DOJ actions are working in an offshore tax crackdown, targeted as it is, why in hell do we need FATCA? Rhetorical question.
*WOW, this is a great site. You have a ton of information here on FATCA. I’m going to add you to my favourites on my professional blog – in-tax-icating – as I saw someone noted I posted the same post on FATCA to both my blogs. 🙂
I deal with FATCA every day and the more I get through the regulations which I have re-written in English, the more I scratch my head at exactly what the US / IRS is imposing on foreign citizens and foreign entities.
With that being said… I see where they are coming from and I kind of like getting ready but it just amazes me.
Keep up the good work.
@urban daddy
Welcome to the Isaac Brock Society site. You stated: ‘I see where they are coming from’. Interesting comment. I have been on this site for months and I certainly don’t see where they are coming from, unless their plan is to implode the world economy.
@urban daddy said ‘I see where they are coming from’
Well, the US has a huge national debt. They’re trying to enforce all the current tax laws prior to raising taxes. This is why this is a bipartisan effort. In this high debt environment, I don’t see how the US is going to go away with citizenship taxation.
What I don’t understand is why the foreign banks turn in their customers, some of which are dual citizen, and breaking their own confidentiality laws. What is more troubling is this statement, from the article I mentioned earlier:
“Under the 2008 treaty, Liechtenstein was only to provide information if asked about a specific, known taxpayer identified by name.
However, according to the Liechtenstein professional trustees and a Liechtenstein attorney, under U.S. pressure, and without any publicity, Liechtenstein on March 21, 2012, quietly amended the 2008 treaty and the Liechtenstein Parliament passed an internal law, the result of which is that “fishing expeditions” are now allowed“
@Welcome Urban Daddy…
Glad you found us. I wondered about the two similar blog postings, and that is why I did similar comments. 🙂 I hadn’t made the connection between the two, but should have figured you were one in the same. The more blogs on FATCA, the better, so I encourage you to keep it up, as getting the word out about what is happening is very difficult when the MSM, (at least in the States) mostly ignores it. Keep tweeting with the hash tag #FATCA. Twitter currently has me blocked, so need more like you keeping new FATCA things into that stream. (I don’t know why, and don’t want to speculate yet!)
I could see you were on the right track in your analysis on your blog, but just didn’t have some other components of the story. The narrative is more complex than just a FATCA stand-a-lone story. I am pleased you took up the invitation to visit here, and with your past CRA experience, I am sure you can add some commentary of value. We try not to be too hyperbolic here, even when passions are running high, and value differing POVs. We might challenge a thought process, and even passionately disagree with comments, but hopefully in a respectful manner. Like your site, we try not to name call. It shuts down conversation and information exchange.
You can explore backwards on the many posts here, and see that there is a lot to digest. The archive button up on the banner is very helpful to scroll down through the list of topics being discussed.
The question of Where they are coming from, is certainly open to conjecture. If you believe the FATCA Bills author’s on the 2009 original press release, this is about collecting $8.5B over 10 years. Now that is just a rounding error on our annual budget, so this is a lot of fuss and muss for very little in additional revenue.
This is really about something else, an agenda of sorts, by those that fear the Rich in the Homeland are gaming the system with offshore accounts. (The collateral damage is the Americans abroad and new immigrants that had no idea the IRS was on a jihad.) They want to shut it down even at the expense of impeding or shutting down financial transactions in this global financial community. They truly are on a mission to create a Global tax data exchange, and not interested, really, in bi-lateral agreements like the Canadian/US tax treaty. That is sooo yesterday.
(BTW, as an aside, There is also, a ‘Last in Time” Rule that seems to void most (some?) of US bi-lateral Tax Treaties if I am understanding correctly. I am just digesting this now, so can not really speak about it intelligently, but it is certainly something for other Brockers to look at and weigh in on as it speaks to some specific Canadian issues.)
No, what we need, according to them, is a Global Tax Data exchange, or GATCA, and if the US and the International Revenue Service (IRS) has to force it down the throats of the world by fiat, so be it. We do it, because we can, or think we can! Actually, they really think they CAN do it, even with all the protests by the FFI’s around the world, and they maybe right. No one is making a stand and saying NO, yet! Canada is as close as we have seen, but even that is uncertain. My prediction is, the IRS will not give any extension in time for FFIs to be compliant, nor will they simplify any of the requirements significantly from the current Draft Regulations. They need this to be fait compli before the end of this administration. That is just my speculation, and would love to be wrong.
DATCA, or the domestic US version of this plan is also critical for the leveraging tool they want/need to make FATCA happen. If Congress lets the IRS impose DATCA without a whimper, even with the Republican House of Representatives we currently have, then you know this is a bi-partisan effort. This IS the will of Congress, by default, and we will have to live with the systemic shocks which could occur. Let’s hope it is not severe, but US citizens are going to have to live with another blow to their freedoms. But following the Patriot Act and the ‘War on Terror” Americans seem anesthetized to freedoms lost, so with no FATCA media reporting, they will just meekly accept the things they do not know or understand. It is too complex anyway, and why do I want to leave Kansas?
*The IRS Oversight Board published the following report in May 2012. It mentions the “intense criticism” of FATCA from US citizens living abroad. A small step in the right direction.
IRS Oversight Board
Annual Report to Congress
2011Foreign Account Tax Compliance Act
p. 35
The Foreign Account Tax Compliance Act (FATCA) was enacted as P.L.
111-147 in March 2010. It requires foreign financial institutions (FFIs) to
comply with disclosure requirements for U.S. accounts. The objective of
these new reporting requirements is to detect and deter tax evasion.
These new information reporting requirements are intended to provide an
additional tool for the IRS to detect non-compliance, in this case focused
on non-compliance through the use of offshore assets.
Activity in 2011 was focused primarily in developing guidance to
implement the FATCA withholding requirements. Several guidance
documents were issued during the last year, including proposed
regulations in February 2012.15 Along with the proposed regulations,
the US issued a joint statement with five European partners indicating
joint support to the underlying goals of FATCA and promoting an
intergovernmental approach to FATCA implementation. However, intense
criticism has been received from US citizens living abroad, who claim
that the regulations impose heavy compliance burdens on them.16
FATCA implementation carries with it much promise but also burden. The
challenge facing the IRS will be to use meaningful measures to evaluate
its use of the additional information, and assess whether the benefits
received from the program outweigh the costs.
16 New York Times, For Americans Abroad, Taxes Just Got More Complicated,
April 16, 2012.
@urban daddy
Glad you’re here! Spread the word…
To consider: Canada’s an advanced “human rights” state. Canada courts are ruthless with intolerance or discrimination; a HR tribunal recently heard the case of a same-sex couple who were insulted in a comedy club.
There are potentially hundreds of thousands of Canadians who could have their privacy invaded, their bank accounts closed, and their investment income withheld in a discriminatory and arbitrary manner ONLY because of their place of birth. if their banks voluntarily comply with the foreign law FATCA.
How do these ducks line up: blatant discrimination and egregious harm…. long-term client relationships…… fiduciary responsibility and duty of care… conflict between domestic and foreign law… banks acting as a foreign state’s revenue enforce agents… a federally regulated industry?
Meanwhile, the banks stance as defendants in any FATCA-based client action is significantly undermined by the reams of public statements they themselves issued against FATCA.
Just Me, did you figure out what Twitter “has you blocked”. That is odd…
Sorry @all, for my duplicate post above, from June 11, with the economia link ‘FATCA attack’, there was a considerable lag before it appeared.
Thank you @JustMe for your post – thoughtful and well reasoned as always! And I am interested in the mention of the “Last in Time rule”;
Re:
“There is also, a ‘Last in Time” Rule that seems to void most (some?) of US bi-lateral Tax Treaties if I am understanding correctly. I am just digesting this now, so can not really speak about it intelligently, but it is certainly something for other Brockers to look at and weigh in on as it speaks to some specific Canadian issues.) “
I wonder how the ‘Last in Time rule’ will apply to current extraterritorial (including prior green card holders, ‘snowbirds’, etc.) and citizenship-based US tax issues. For example, does that mean that FATCA – unilaterally imposed by the US, would overrule any current provisions of the bi-lateral tax treaty with Canada (or another country) where terms are in conflict – even if Canada (or the other country) has not agreed to any such changes? In that case, what are the treaties worth then?
@ badger
And you ask the Key question that came to my mind. I have sent it over to Phil Hodgen to get his opinion on that issue.