Liberty and justice for all United States persons abroad

The Isaac Brock Society

1,012 thoughts on “FATCA Discussion Thread (Ask your questions) Part One”

  1. FATCA creates strategic dilemma for wealth managers

    FROM TAX & REGULATION AUG 3 2012 BY: ESTHER ARMSTRONG

    Daniel Freedman, co-founder of the firm, said: “The vast majority of firms have concluded the costs are simply too high and have made the commercial decision to exit the market, making their US clients orphan,” Freedman said.

    “In dealing with US clients one has always to understand the challenges of working across two jurisdictions, and the regulatory and investment implications of doing so. Wealth managers which want to continue working with clients who have a US tax reporting obligation have had no choice but to invest heavily in systems capable of handling not only the sales aspects of the business, but also its operations and – for tax and compliance purposes – more complex investment reporting requirements.”

  2. I don’t know whether anyone has posted this yet. It’s the US Government Accountability Office’s report on FATCA dated April, 2012.

    Some highlights from its summary:

    ‘Without a consolidated assessment, there is less assurance that all risks have been comprehensively identified…Officials also cited the challenge of conducting a full risk assessment for a multiphased program still in its early stages…IRS has begun to discuss how it will use information to improve compliance, but it has not yet completed or fully documented a broader strategy for doing so…’

    A failure to plan is a plan to fail? We can only hope so. Unleashing FATCA on the world was irresponsible, and the continued drive to implement it is utter hubris.

    http://www.gao.gov/assets/600/590142.pdf

  3. Bubblebustin, Tim, JustMe, Patricia,

    As it looks like the intergovernmental agreement for the “G5” will be a one-way street (i.e. the FFI report to the US but the US does not report to anyone) the institutions of those countries will bear the costs to identify US Persons, implement and maintain the reporting with no benefit, whatsoever, to their nations.  This means that the shareholders of those institutions and the ordinary account holders, who for the vast majority, are not US Persons will bear the extravagant costs.  Obviously the general public (the Germans, British, Italians, etc.) is not at all aware, but I am surprised that the  big stakeholders are not reacting.  This gives an unfair competitive advantage to the US financial institutions.  Surely this is something that the large stakeholders, with the teams of lawyers and the funds to do so, would be litigating, perhaps in an EU court, or the WTO, or the likes. 

    Have I missed something here?

  5. ABA – Australian Bankers’ Association : Welcome development on FATCA

    Steven Münchenberg, Chief Executive of the ABA, said: “An IGA will not only reduce the compliance burden for all financial institutions in Australia, including the self-managed superannuation funds, but will also significantly reduce the impact on customers of FATCA identification and reporting to the US authorities.”  

    “We understand the goal of FATCA in reducing tax evasion by US citizens, but the IGA offers a pragmatic way for Australian banks to comply.”

    “Our aim is to have Australian banks reporting directly to the Australian Tax Office (ATO), rather than the US Internal Revenue Service.”

    “The ABA has worked closely with Treasury and the ATO on the concept of an IGA, and we look forward to assisting the Federal Government in finalising the agreement.”

  6. Tax haven crackdown reaps big rewardsIn case anyone doubts that the OECD isn’t leveraging FATCA into GATCA

    LONDON – A global campaign to tax trillions of dollars hidden in offshore tax havens has made revolutionary progress, an official leading the drive said, rejecting suggestions that the super rich are running rings around Western authorities.

    Pascal Saint-Amans, director of a unit at the Organisation for Economic Cooperation and Development, also cast doubt on estimates that the havens are illicitly sheltering wealth equivalent to several hundred times the fortune of Bill Gates.

    Leaders of the G20 group of leading Western and developing nations launched the campaign three years ago, aiming to claw back billions in lost tax revenue at a time when many governments are trying to cut huge budget deficits.

    Saint-Amans said his gut feeling was that before the G20′s initiative at its 2009 London summit, people could hide their wealth in offshore havens without any risk of legal reprisals.

  7. In echo to what Innocente wrote in another posting:
    http://genevalunch.com/blog/2012/08/06/swiss-say-new-us-demands-slowing-down-tax-deal/

    Also this article mentions that the banks also require their non US customers to close their US accounts, or threatens them to close their account.
    “And at least some Swiss banks are now also insisting that their clients who have bank accounts in the US close them or risk seeing their Swiss accounts closed.“

    The pool of people impacted grows bigger…

  8. @Christophe…

    As a follow on to that story….I assume you also saw this story on Switzerland capital flight…

    Capital flows are going everywhere as a result of this offshore tax evasion efforts.  Where it settles, and what the ultimate impacts are, is unknown.

  10. For the Channel Islands Fatca options remain open until Swiss details are known

    The publication of the Model Intergovernmental Agreement, expected to be signed with the UK, France, Germany, Italy and Spain, has been seen as a significant step forward in the debate on the Foreign Account Tax Compliance Act.

    But the local industry is unlikely to conclude on its favoured option until details emerge of a framework co-operation agreement made between the US and Switzerland. This is expected to take a couple of months.

    ‘There’s still a lot to be done before Fatca is due to come in next July,’ said Maxine Rawlins, tax partner at Ernst & Young, pictured above.

  11. FATCA poses a strategic dilemma

    Assuming that firms can identify US-linked clients they are left on the horns of a strategic dilemma, to create a compliant investment solution or not.  Such solutions must not only avoid toxic assets but also meet the onerous reporting requirements.  The vast majority of firms have concluded that the costs are simply too high and have made the commercial decision to exit the market, making their US clients orphan.

  12. Interesting story…

    A model for coming impacts of  non compliance with FATCA regulations?

    British Bank Accused Of Hiding Iranian Transactions

    Will any of this thrashing around and pressure to exclude them from America have any long term impacts?  Interesting to watch.  Who are you Americans to tell the rest of the world not to do business with Iran?  Good question.

  13. @Just Me: Who are you Americans to tell the rest of the world not to do business with Iran?

    When something similar came up with Cuba in the guise of Helms-Burton both the EU and the UK found ways to neutralize it:

    “The European Union introduced a Council Regulation (No 2271/96) (law binding all member states) declaring the extraterritorial provisions of the Helms–Burton Act to be unenforceable within the EU, and permitting recovery of any damages imposed under it. The EU law also applied sanctions against US companies and their executives for making Title III complaints.

    The United Kingdom had previously introduced provisions by statutory instrument extending its Protection of Trading Interests Act 1980 (originally passed in the wake of extraterritorial claims by the U.S. in the 1970s) to United States rules on trade with Cuba. United Kingdom law was later extended to counter-act the Helms–Burton Act as well. This included criminal sanctions for complying with certain provisions of the Helms–Burton Act whilst in the UK.”

    Looks like we need a reprise of this.  And an add-on to neuter FATCA wouldn’t go amiss either.  But given the current submissive attitude of EU politicians towards Washington it’s probably not a good idea to hold your breath while waiting.

  18. Team To Investigate FATCA Impact On Israel

    Israel’s Finance Minister has set up an expert team to consider the impact and application of the US Foreign Account Tax Compliance Act (FATCA).

    FATCA, enacted by the US Congress in March, 2010, will require foreign financial institutions (FFIs) to disclose information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest. Failure to do so will result in a requirement to withhold 30% tax on US-source income. All FIIs must enter into a special agreement with the Internal Revenue Service (IRS) no later than June 30, 2013. It is expected that reporting will begin by January 1, 2016, in respect of the calendar year 2015.

    The team set up by Israel’s Ministry of Finance Director General Doron Cohen includes representatives from the Ministry of Finance, the Bank of Israel, the Israel Securities Authority and the Ministry of Justice. According to Cohen, the implementation of the FATCA provisions by financial entities in Israel is expected to give rise to many difficulties, in light of the existing barriers in Israeli law. Operating costs are also expected to escalate.

    With this in mind, Cohen’s team will investigate the implications that implementing FATCA will have for Israel. It will examine the possibility of implementation by means of a bilateral agreement between Israel and the US. A potential outline for any such agreement will be proposed by the team.

  19. @Bubblebustin – Thanks for finding that.

    The interesting thing here is that this investment involves no US source income. The risk outlined means that an Australian citizen living in Australia (with dual US citizenship), who earned their money in Australia, and then invested their money in bonds with an Australian bank and that money goes nowhere near the US, could be subject to FATCA withholding. This makes me mad as hell.

    I’m pasting the content of the FATCA clause from the Westpac investment “key risks” section below for greater visibility.

    Key risk text:
    “Holders may be subject to FATCA withholding and information reporting in relation to the Westpac Subordinated Notes
    It is possible that, in order to comply with FATCA, Westpac (or if Westpac
    Subordinated Notes are held through another financial institution, such other financial institution) may be required (pursuant to an agreement with the US Internal Revenue Service (IRS) or under applicable law) to request certain information from Holders or beneficial owners of Westpac Subordinated Notes, which information may be provided to the IRS, and to withhold US tax on some portion of payments made after 31 December 2016 with respect to Westpac Subordinated Notes if such information is not provided or if payments are made to certain foreign financial institutions that have not entered into a similar agreement with the IRS (and are not otherwise required to comply with the FATCA regime under applicable laws or are otherwise exempt from complying with the requirement to enter into a FATCA agreement with the IRS). If Westpac or any other person is required to withhold amounts under or in connection with FATCA from any payments made in respect of Westpac Subordinated Notes, Holders and beneficial owners of Westpac Subordinated Notes will not be entitled to receive any gross up or additional amounts to compensate them for such withholding. This description is based on guidance issued to date by the IRS, including recently issued proposed regulations. Future guidance may affect the application of FATCA to Westpac Subordinated Notes.”

  20. @JustMe, and @all;
    Re: “Israel’s Finance Minister has set up an expert team to consider the impact and application of the US Foreign Account Tax Compliance Act (FATCA).”

    Do you think that if Canada (and Mexico) as the home of a substantial number of duals/USdeemed ‘taxable persons’, announced a similar commission or team, it would simply signal an intent to figure out how to get along under FATCA, rather than an intent to demonstrate its overreach – and hence hasten its demise?

  21. @badger

    Precisely one of my suggestions submitted to the Canada’s 2013 Budget Finance Committee.

  23. @Moby,

    Good point, but as far as I can tell, you are the only in NZ or Australia who seems to care!  They all think an IGA is going to save them.  

  25. @ Just Me / Tim

    At this stage I don’t think Westpac would have the legal authority to comply with FATCA. They are just covering their backsides in case the legal authority is granted to them and they use it. So it’s still a waiting game to see what will actually happen.

    In a way it’s good that this is in the public domain now, because it starts to drag the beast out of the shadows and into the daylight. Hopefully it will get some more airtime.

    One thing it does highlight is how much of a hand grenade the poorly-defined “passthru” payments issue will be. The excerpt indicates that any domestic (i.e. Australian) payment could be subject to withholding, based on the mere existence of any US source income for the bank in general. So even if the bonds financed Australian mortgages, and the income stream from the mortgages went straight to the Australian bond holders, the bond payments would be subject to taxation by the US government. My fervent belief is that this will fly like a lead balloon.

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