Our new friend, 30-year IRS veteran, Steven Mopsick, has been a really good sport. He’s defended the orcs of Mordor, his former colleagues at the IRS fearlessly, and he’s taken our abuse like a trooper. He’s asked me if I wanted to put up his new post on FATCA, and I said to myself, why the heck not? Meanwhile, go have a look at his blog, especially this little piece, called FATCA Red Herring, which starts with this whopper, “For all the groaning about FATCA, there is one ‘red herring’ which should be given the lie right away, and that is the silly notion that FATCA is an attempt to force the application of U.S. law on foreign financial institutions.” Well, if nearly 400 pages of orcish regulation isn’t an attempt to force U.S. law on FFIs then I don’t know –but wait, these regs still hadn’t come out when Steven wrote that post–so you’re off the hook, Steve–I am being unfair.
Again, caveat emptor! The Isaac Brock Society maintains a non-endorsement policy of tax-professionals (see here). Also, please read not just the post, but the full comment stream.
New Rules For Foreign (Non-American) Banks with American Clients
by 30-year IRS veteran
With the publication on February 8, 2012 of the FATCA bank withholding regulations, it is clear that the FATCA train has left the station. The 400 pages of new Regulations would apply to almost every non-American bank in the world if they wish to continue to do business with American clients and financial institutions.
How FATCA works in a nutshell. The impact of the new law is two-fold. Americans with assets outside the United States starting with their 2011 tax returns, now have to disclose to the IRS, all of their foreign financial assets exceeding a specified dollar threshold, including their non-American bank accounts.
For non-American banks with American clients, they must agree to become a “withholding agent” of the United States government through the IRS, agree to an IRS review of their internal procedures, file an annual tax information return with the IRS disclosing the names and ID numbers of all their American clients, and if the American client refuses to cooperate with the bank, close the account immediately.
As part of a worldwide effort to stop Americans from using offshore banks and other financial institutions to cheat on their taxes, it was also announced on February 8, that five European countries including Spain, are working toward sharing certain data bases so that the European countries can benefit from FATCA and catch their own people who are cheating on their taxes, as well as European bankers and advisers who have been counseling American investors about how to evade taxes by using European banks and other entities. What is significant about the European announcement is the FATCA concept that participating European banks in those five countries will soon be able to give their information on American account holders TO THEIR GOVERNMENTS instead of directly to the IRS. Banks in those countries may soon be relieved of the requirement of entering into a separate agreement with the IRS. Their governments will turn over their records on their Americans and their banks will not have to deal with the IRS. We believe this creates a huge advantage for banks in those countries and we predict a scramble in other western countries to become part of that elite group of countries which are working hard to implement FATCA.
DETAILS ON THE NEW REGULATIONS AS THEY APPLY TOFOREIGN BANKS AND WHAT IS COMING UP NEXT.
The Regulations published on February 8, 2012, reflect the IRS response to the many comments the IRS has received from banks all over the world over the past several months. Most banks today have been very busy making changes to their IT systems to identify their American customers and comply with the new FATCA rules.
The IRS announced a formal comment period on the proposed Regulations which closes on April 30 of this year. Banks with concerns about the implementation of FATCA should participate in this process by submitting comments. Following the comment period, there will be a public forum on May 15 in Washington, D.C., at which time banking institutions will have another opportunity to talk directly with the IRS and raise any concerns they may have on how the processes are supposed to work.
Some foreign bank compliance officers with whom I have spoken have confirmed they are busy revamping their systems to get ready for the new rules which will be summarized below. Foreign banks which are inactive, waiting for further direction from domestic ministries or fiscal agencies are losing precious time and are doing so at their extreme peril. Moreover, even if the deadline to apply to be a withholding agent for the IRS is postponed again, those foreign banks who are late getting in their paperwork are going to cost their shareholders and owners money because of lost business, direct liability for the taxes they should have withheld, and attorney and accounting fees to straighten the mess out with the IRS once the bank fully complies.
Here is what each foreign bank must do if it wishes to continue doing business in the United States’ financial arena
A participating bank must agree to become a withholding agent of the IRS and
(1) Report certain information on an annual basis to the IRS with respect to each U.S. account and other accounts controlled by Americans and to comply with requests for additional information with respect to any U.S. account.
(2) The information that must be reported with respect to each U.S. account includes: (i) the name, address, and taxpayer identifying number (TIN) of each account holder who is a specified U.S. person (or, in the case of an account holder that is a U.S. owned foreign entity, the name, address, and TIN of each specified U.S. person that is a substantial U.S. owner of such entity); (ii) the account number; (iii) the account balance or value; and (iv) the gross receipts and gross withdrawals or payments from the account .
(3) The bank must obtain a signed waiver of its American clients’ privacy rights, if any, in that foreign country.
(4) If the American depositor refuses to cooperate, the bank must close the account.
All banks which decline to participate in the program will be at risk for a 30% withholding tax on certain defined transfers of US source income to them. This includes pass through payments of US source income to, or from other foreign banks who the IRS determines are non-Participating Foreign Financial Institutions.
ONE OF THE MOST IMPORTANT POINTS IN THIS PAPER IS THE FACT THAT FATCA APPLIES TO TRANSFERS OF US SOURCE INCOME BETWEEN FOREIGN BANKS; IF JUST ONE OF THE BANKS IS NOT PARTICIPATING, THE WITHHOLDING REQUIREMENTS APPLY.
In today’s world, a banker cannot do his job properly if he does not ask whether or not FATCA applies to every single transfer of funds involving US Source Income to or from a bank which is not a U.S. bank.
I have extensive information on the implementation dates, the rules for identifying Americans from amongst other depositors, streamlined rules for affiliates and branches of banks, the circumstances of how a bank might qualify as a “deemed compliant” bank which permits certain relief from some of the administrative burdens, key definitions, record keeping requirements, how the Anti-Money Laundering and Know Your Customer rules operate within this arena, the treatment of certain life insurance policies, and the potential liability of the banks themselves for the payment of withholding taxes which were not correctly reported.
The newly-published rules also announced a relaxation of the threshold for rules which are specifically targeted toward Private Banking and personally against Private Bankers.
Banks all over the world have realized that compliance with FATCA is simply the cost of doing business in today’s computerized, modern financial environment. Please feel free to share my summary of the new regulations contained herein as you deem appropriate. Additionally, I am available for consultation, which can be arranged by contacting my office.
I admit to haven’t really read the regulations all that much but where in them is the IRS/US Treasury allowed to exempt certain countries where they are talking about these bilateral agreements ala the UK and France. It seems like they could be challenged in court by banks in other countries for giving special treatment.
@Petros, thank you for posting this. I have a couple of simple questions that perhaps you could pass back to Mr. Mopstick for his comments.
1. How will foreign banks detect the US citizenship of persons born in that country to a US parent, who has never had a US passport, has no Social Security number, has never traveled to the US or who may not even be aware that born abroad to a US parent he/she is indeed a US citizen with all the same tax obligations of a US citizen born in the US? And what will happen of the Bank fails to idenify such a person as a US citizen?
2. In countries such as Brazil where the constitution of that country does not permit banks to collect taxes on behalf of foreign governments, what will happen?
Thank you if you can clarify these questions.
Wow. I wonder if this also means that if I theoretically transferred, $20,000 from a US-based account to a non-participating credit union where I live, would this non-US bank be fined 30% of the amount even if it weren’t participating? It gets very confusing. It could effectively mean that people like myself who live abroad could find it difficult to send money from the US to their local bank unless it was fully compliant itself. Hopefully I’m reading this wrong!!
Petros, here is my blog on how FATCA will catch US persons. good stuff in here
http://www.moodystax.com/blog/33-us-taxation-services/187-new-regulations-clarify-how-non-us-banks-will-find-and-report-us-customers-to-irs.html
@Roy: Thank you for posting. I (and others!) have a huge question. How will Canadian financial institutions be able to ask if a person is a US citizen. Doesn’t Canadian Human Rights Code and Charter of Rights prohibit discrimination on the basis of national origin?
Will a foreign law (US) override that fundamental right? Never in over 40 years in Canada have I been asked for information about my place of birth. Information Tim posted elsewhere lists types of ID which are acceptable. A birth certificate may only be used if it is Canadian. Other ID, ie. driver’s license, SIN, citizenship certificate do not contain place of birth.
Also,Petros has posted info in another thread about Certificate of Loss of Nationality. That seems to indicate that a non-US passport and a reasonable explanation to show the person renounced citizenship can be used in place of a CLN. I was told by American Consulate 40 years ago I was renouncing by becoming a Canadian citizen. I can’t think of any more reasonable explanation for my understanding that I have not been a US citizen for 40 years (and there are many more like me)
I hope you will be able to respond because most Canadians being pulled into this have the huge question: How will they know? Isn’t asking a violation of Human Rights, Charter Rights and even of the Bank Act?
Thanks.
Hi Petros: I think you are the “good sport” and I have nothing but respect for you and all the other kind folks from the Great Country to the North who have contributed to this great forum. Here are some miscellaneous responses in no particular order.
1. Royaberg’s post at 7:59 pm is “right on” and should be required reading for anyone who wants to understand how the bank rules work under FATCA and how the banks and the IRS are going to “find out”.
2. Monalisa1776: sadly, I don’t think you are reading FATCA wrong. The way I read the regs, under your example, the Canadian credit union is not actually “fined”: assuming your proposed transfer is “US source income.” You give the order to your US bank to transfer $$ to the Canadian credit union. The US bank checks to see if the credit union is particating or non-participating. If it is not, the US bank is the withholding agent for the IRS and subtracts 30% from the amount and pays it over to the the IRS, who credits the 30% to YOUR IRS account as a withheld amount..you have to then file a tax return and claim the money as a withheld amount. The IRS will then send you a refund check ASSUMING YOU DON’T OWE THEM ANY MONEY for a prior year.
Tim: I am not an expert on international law but I don’t remember ever learning that a foreign bank has a US constitutional right to “equal protection” under our laws. That said, I’m sure you are right. FATCA is certain to spawn a whole new round of litigation–banks against banks, depositors against banks, countries against countries, and banks against the United States.
3. Roger: in fact the banks will NOT be able to detect those accidental Americans, but it won’t matter. The regs set out a list of things the banks have to do to detect their hidden American depositors and all they will have to do is show the IRS that they made a good faith try and they will not be held liable for the withholding tax the IRS may come around to ask about.
As far as countries like Brazil are concerned where their constitutions prohibit the collection of taxes for a foreign country, remember FATCA is all about money, and when the promise of money is combined with the age old universal spirit of free enterprise, you have the makings for a high degree of motivation to solve the problem. They’ll figure something out. Some will urge their governments to change their constitutions.. Maybe some foreign banks will open branches in other countries where the local law could care less about how money flows around.. Some banks will make mega-law firms even richer by paying them to sue their own governments or the US government.
One thing is certain. Neither Brazilian banks nor bankers anywhere else in the world are going to walk away from the chance to make a lot of money in the US financial sector. Trust me. The bankers and lawyers will find a way to make FATCA work and that is what is happening right now in board rooms, law offices and in most foreign ministries. It’s all about the money.
@Steven I am indeed grateful for your participation.
Given your answer to Mona Lisa, I just wonder if this is the ultimate bluff by the United States that will be called by the other nations to the great detriment of the US. We now produce the goods that the USA needs. Supposing our FFIs will not or cannot comply, then what you are describing is simply this: The United States will have to pay 30% more for importing goods than any other nation in the world, because no one will endure the withholding of 30% until the tax return time. That’s just ridiculous. So the United States better start producing its own oil, gas, food, cars, etc. This will impoverish the American people in a way that nothing else will. The massive exodus of capital will happen in the days, weeks and months leading up to the full implementation of FATCA.
FATCA is capital control pure and simple. I am surprised that more people don’t understand the ramifications of this. Steven, you seem yourself not to understand when you say, “Neither Brazilian banks nor bankers anywhere else in the world are going to walk away from the chance to make a lot of money in the US financial sector.” I can assure they will walk away. They can and they will. They are just waiting for an excuse like this to do it. Consider this article, just to give you an idea: http://www.zerohedge.com/news/india-joins-asian-dollar-exclusion-zone-will-transact-iran-rupees
The end result will be massive hyperinflation of the US dollar as the rest of the world rejects the US dollar as the world’s reserve currency.
Hold on there for a moment Mr. 30 year veteran. I sense that you are enthusiastic for this program, or maybe just accept that it is inevitable. I don’t want to mischaracterize you, so correct me if I am wrong. I do appreciate you are attempting to educate us here about the 388 pages in an executive summary form, and good to have the discussion and your input.
However….
There may be one little element missing in the much discussed 5 nation pact that was in all the press reports as an alternate to the onerous FATCA FFI reporting regime. Congress might not go along with it. Has anyone at the IRS considered that?
How does the US enter into these arrangements without requiring similar TIN reporting from US banks of those countries citizens who are holding accounts in America? Are US banks going to go along meekly?
Are the citizens of these EU countries so passive that they won’t mind if their accounts in the US are turned over to the IRS and back to their internal revenue departments?
Will Capital start to flow out of US banks, and what is the cost of that?
It does appear that a US version of FATCA (DATCA, I call it.) is the regulatory tool that the IRS is going to try and use to make this 5 country partnership work. If the IRS doesn’t get the TIN data from US banks on France, Germany, Italy, Spain and the United Kingdom citizens, there cannot be a reciprocal agreement, and the partnership fails, or so it seems to me….
There is strong opposition to this that is bipartisan in Congress. Have you seen the letter from the entire Florida delegation? They are rightfully concerned about capital out flow from US banks in their State. I am sure the bank lobbyist are frantically working to stop this dead in its tracks, as it has been tried before, and beat back!
See the letter to Obama that I have just uploaded here:
http://isaacbrocksociety.com/2012/02/08/treasury-irs-issue-proposed-regulations-for-fatca-implementation/
Also, have you read this letter by Congressman Charles Boustany, Chairman of the Subcommittee of Oversight? http://1.usa.gov/ty6cyk
He is demanding answers too!
It would appear so far, that Geithner, Shulman and Company (including supporters in Congress like Carl Levin) are not backing down from their DATCA style regulations to require US banks to report on all non residence interest in all US banks to the IRS. Geithner probably told Rep. Charles Boustany, R-La. to go pound sand, or just ignored him. I would be interested if any docile reporter ever followed up with this Congressman, as to what response he got from Geithner? Maybe I will call him Monday and find out!
Also, I hear via the grapevine, that Senators Rubio (Florida) and Cornyn (Texas) were going to try to introduce a rider onto the transportation bill to block the ability of U.S. financial institutions to report on holdings of non-resident aliens in their banks to the IRS. We shall see what happens.
So, as they say, it ain’t over until the Fat Lady sings, and in this case some in Congress may be warming up their voices for the chorus. I don’t accept that this is fait accompli yet. If I were the IRS I wouldn’t get too excited about the wonderful revenue benefits all of this is going to have once they stop Homeland US Citizen’s offshore tax evasions. FATCA won’t stop it. The money is already flowing somewhere else, shoes, bras, suitcases, and maybe just into safe deposit boxes. The Swiss can’t keep up with the demand for notes!
http://brucekrasting.blogspot.co.nz/2012/02/on-banknotes.html
So what is the IRS going to do next, pass a world wide reporting requirement on safe Deposit Box Contents? What if it goes into bed mattresses? Are we going to require form 8398 reporting on that also? Are all bras going to be checked at the border? Has anything the IRS done ever stopped drug money flow, or money to terrorist? If NO doesn’t quickly spring from your lips, you have been immersed in the system too long to think rationally.
These FATCA measures are just going to increase the systemic capital flow problems for the US and the world, not solve the problem of tax evasion. Only thing that stems it is a rationale and thorough tax simplification regime that sheds about 70,000 pages of special interest tax legislation, does away with Citizenship taxation model, moves to a territorial model like the rest of the world, and is coupled with US spending restraints to get it’s budget deficit under control. You are not going to pay for US over spending on the backs of offshore accounts and US Expats..
One final thought about data sharing pact between these counties internal revenue departments. The reciprocity that the US wants out of these 5 EU partners is somewhat unbalanced as you should know, but never mind. Citizens of these countries ARE NOT taxed if they are residing in the US. However the US DOES tax its US citizens and US Persons if they are residing in the 5 countries. Not exactly a fair playing field. So how do US banks make that distinction? Will they be required to do that? Will they want to do that? Can they do that? What is the cost of doing that?
Again, you guys that love all these new regulations and complex 388 pages of detail, never stop to think about the unintended consequences until we read about it years later after some systemic credit freeze or capital flow problem that becomes the subject of books that trace the origins back to this type of world wide regulation/control attempt. I can already see the book title now. “THE BIG US Capital Drain, how it happened and Why!”
Of course, in Congresses and the IRS’s eagerness to get those homeland cheats, they care not a twit about the impact on US expats, dual US citizens and/or US persons who are residing in those countries. If the target of all these tax evasion efforts, is to keep US homeland Rich from evading taxes as it is claimed, how much collateral damage is acceptable in this jihad? Does anyone at the IRS or Congress understand collateral damage, or in these days of drone strikes do we think our regulatory efforts are as precise as GPS directed bombs! Not!
“Banks all over the world have realized that compliance with FATCA is simply the cost of doing business in today’s computerized, modern financial environment. ”
“As far as countries like Brazil are concerned where their constitutions prohibit the collection of taxes for a foreign country, remember FATCA is all about money, and when the promise of money is combined with the age old universal spirit of free enterprise, you have the makings for a high degree of motivation to solve the problem. They’ll figure something out. Some will urge their governments to change their constitutions.”
“Neither Brazilian banks nor bankers anywhere else in the world are going to walk away from the chance to make a lot of money in the US financial sector. Trust me.”
When the cost of doing business with the US economy includes hundreds of millions of dollars in new reporting and collection protocols, angry bank customers who will have to pay higher fees to the banks for this compliance and additionally be forced to answer questions they are constitutionally protected from providing to banks, and governments pressured to change their privacy laws in order to continue doing business with the US, you have “a high degree of motivation” to find other countries in the world who are easier to deal with and who would be happy to have our business, rather than continue to kowtow to an increasingly arrogant and capricious US government that long ago lost sight of the long-term consequences of abusing its friends and punishing the success of its own citizens.
“They’ll figure something out”…sounds like a line from an Ayn Rand novel when the looters keep thinking up new ways to exploit people who actually produce something. They’ll figure out that the US economy is no longer the only game in town
FYI: Bank account ID in Canada
In a nation of immigrants, how will Canadian banks treat Canadian citizens born in the US differently than Canadian citizens born in China, Africa, or Pakistan? The concept of “US person” has no more legal standing under Canadian law than “Polish person” or “Jamaican person”, provided the individual is a Canadian citizen or legal permanent resident.
If Canadian banks actually begin closing accounts of Canadian citizens because of their US birthplace,
this will likely be an issue for our highest courts to decide under the Canadian Charter and Human Rights Act. Possibly a Canadian law firm will take this on as class action challenge, representing the most blatant, egregious and sympathetic individual situations as a test case. Some of the personal stories on this site certainly suit.
As per the Scotia Bank web site, here is the ID required to open a Canadian Bank Account. Information regarding place of birth or nationality or ethnic origin is absent. A Canadian Drivers license and SIN card is adequate. A drivers license and credit card is OK as well. This was also confirmed on various government websites for newcomers to Canada under “Access to Banking Services”.
ID REQUIRED TO OPEN A BANK ACCOUNT
http://www.scotiabank.com/ca/en/0,,20,00.html
( edited this to shorten)
“When you open a personal deposit account with us, we require that you present:
* Two pieces of personal identification from those listed in Part A or B of the Schedule of Acceptable Identification (see below), at least one of which must be from Part A, or
* One piece of identification from those listed in Part A, if your identity is also confirmed by a client in good standing with Scotiabank or by an individual of good standing in the community where your branch is located.
You must also disclose to us the following information, if it is not available on the pieces of identification that you present:
* your full name
* your home address, if any
* your date of birth, and
* your occupation or type of business, if any.
Schedule of Acceptable Identification
This list is provided per the “Access to Basic Banking Services Regulations” under the Bank Act (Canada).
Part A
* A valid driver’s license issued in Canada, as permitted to be used for identification purposes under provincial law
* A valid Canadian passport
* A Certificate of Canadian Citizenship or a Certification of Naturalization, in the form of a paper document or card, but not a commemorative issue
* A Permanent Resident card or Citizenship and Immigration Canada Form IMM 1000, IMM 1442 or IMM 5292
* A provincial or territorial health insurance card, as permitted to be used for identification purposes under provincial law
* A Certificate of Indian Status issued by the Government of Canada
* A document or card, bearing your photograph and signature, issued by any of the following authorities:
o Insurance Corporation of British Columbia
o Alberta Registries
o Saskatchewan Government Insurance
o Department of Service Nova Scotia and Municipal Relations
o Department of Transportation and Public Works of the Province of Prince Edward Island
o Service New Brunswick
o Department of Government Services and Lands of the Province of Newfoundland and Labrador
o Department of Transportation of the Northwest Territories
o Department of Community Government and Transportation of the Territory of Nunavut
* A Social Insurance Number (SIN) card issued by the Government of Canada
* An Old Age Security card issued by the Government of Canada
* A birth certificate issued in Canada
Part B
* A credit card, issued by a member of the Canadian Payments Association in your name, or bearing your name and bearing your signature
* A Canadian National Institute for the Blind (CNIB) client card bearing your photograph and signature
* An employee identity card, issued by an employer that is well known in the community, bearing your photograph
* A bank or automated banking machine or client card, issued by a member of the Canadian Payments Association in your name, or bearing your name, and bearing your signature (the card must be embossed with your name)
* A valid foreign passport
There is an angle here that I have not seen discussed, but seems important and relevant.
FATCA compliance on the part of Canadian banks and other financial institutions is voluntary. They are not legally obliged to comply; it is merely “the cost of doing business” in the US.
That being said, if a Canadian bank or other financial institution closes the account of a person deemed to be a “US person” or withholds 30% of funds paid out of the account, they are prima facie vulnerable to legal action on the part of the owner of that account.
What does it mean for an account to be closed? In the case of bank accounts, it is not clear that they are legally able to do so, if it is a federally chartered bank. Investment accounts, pensions and the like are mostly provincially regulated. I recently phoned the Ontario Security Commission to get clarification on this point. The person I spoke to referred me to the Investment Industry Regulatory Organisation of Canada, to which most regulatory matters have been delegated. The person I spoke to at the IIROC said that investment accounts can indeed be closed, and that most client contracts include a provision allowing the account to be closed on 30 days notice. In this event, the account is frozen until arrangements are made for it being wound down. In the case of a (defined contribution) pension they cannot simply cut a cheque. It would presumably mean transfer of the pension to a non-participating (i.e. non-compliant) financial institution, if one can be found. But when this happens, 30% withholding tax would apply.
Possible actions by the financial institution would be:
a) 30% withholding on payouts from the account
b) closing the account and imposing 30% withholding upon transfer to a non-compliant financial institution
c) freezing the account in perpetuity, or until the client satisfied US demands
This is my best interpretation of the situation; i welcome correction, if I am wrong.
The point is this: in any of these scenarios, the financial institution is doing harm to the client not because they are obeying the law — this is Canada and FATCA is not Canadian law — but because it is advantageous for them to do so; it is the cost of doing business in the US. As such, it seems to me they would be highly vulnerable to class action suits from victimized clients. It is the clients’ money; it is not the banks’ to give away.
I am not a lawyer. These are my musings on the situation. If anyone with legal background can comment, I would be most interested.
From the link that royaberg put up:
“In order to determine whether an account holder is a US person, the financial institution is required to search for the following specific items:
Identification of the account holder as a US person;
Whether the account holder was born in the US;
Whether the account holder has a US address or US telephone number;
Whether there are instructions to transfer funds to an account maintained in the US; and
Whether power of attorney or signatory authority has been granted to a person with a US address or telephone number.
If any of the foregoing are present, the institution must require the account holder to complete a US information report (form W-9) and that report will be submitted to the IRS. ”
This is crazy, as I understand it. “If *any* of the foregoing are present” ??? What about those people who were born in the US but have renounced their citizenship?
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@Steven: “…sadly, I don’t think you are reading FATCA wrong. …subtracts 30% from the amount and pays it over to the the IRS, …you have to then file a tax return and claim the money as a withheld amount.”
There’s a lot of dreadful policy in FATCA, but this provision may be the nadir. Consider people with absolutely no connection to the US other than making inward investments. Perhaps buying govt bonds or stocks on the NYSE. If they see 30% of their dividends and gross sale proceeds held hostage by the IRS for months on end do you think they will continue to invest in the US?
And not just individuals, but major companies also:
http://www.ft.com/cms/s/0/4e6e31a6-95e4-11e0-ba20-00144feab49a.html#axzz1m9xD3k9d
“This summer, the senior management of one of Asia’s largest financial groups is quietly mulling a potentially explosive question: could it organise some of its subsidiaries so that they could stop handling all US Treasury bonds?”
@ax: “If any of the foregoing are present, the institution must require the account holder to complete a US information report (form W-9) and that report will be submitted to the IRS. …What about those people who were born in the US but have renounced their citizenship?”
Presumably these folk would send W8-BEN instead. But that’s going to be no help if the bank involved chooses to implement FATCA by shunning anyone and everyone with any connection at all to the US. Some non-US banks are already refusing accounts to people who have lived in the US for any period, even if they are not and never were a “US person”.
I hope you all are having as much fun with this as I am! There is a lot to respond to.
I just spent a week in Panama talking to American expats and Panamanian bankers. The situation for expats in Panama is a bit different from what is going on in Canada right now. People are of course upset with the burden of complying and they are also realizing, if they file tax returns at all, that FATCA is going to add a couple of hours of prep time to fill out a form 1040. I didn’t hear very much about the accidental American problem in Panama as much as you folks talk about it but I am sure it exists.
The Panamanian banks are for the most part, damned mad about it and once I got through explaining FATCA to the Panamanian bankers, it was clear to me that they were already doing what so many large banks are now doing all over the world: learning what the statute and Regulations say, and most importantly for their officers and shareholders, finding exactly what they have to do to comply with the law so that they can remain profitable. The big boys are not sitting around trying to find ways to avoid FATCA. They are not thinking about fairness or collateral damage. They want to know what the law is and what they have to to comply with it.
I don’t have an opinion about whether FATCA is good or bad or what the best arguments are for taxation based on citizenship as opposed to residency. I am a lawyer practicing my trade. I have certain skills which some people may need or find helpful. I do know something about human nature and I believe that people all over the planet want the same thing: safety and comfort for themselves and their loved ones and a chance to make money so that they can buy things and accumulate property. I also know that it is still true that there are far more people in the world who are trying to establish lives in the United States and prosper here, than there are people who want to leave.
I have said over and over on the IBS website that every single person’s tax picture is different. We certainly know that OVDI is not for everyone and we also know that applying some of the FATCA principles to certain people with little or no connection to the States makes no sense. I also remain confident that once the cooperating governments make sure the money keeps flowing like it’s supposed to, they will get around to working out the necessary protocols to protect innocent Canadians from the unintended consequences of a law WHICH CONGRESS PASSED, NOT THE IRS.
The problem of the unintended consequences of FATCA to innocent Canadians is not the point. The reality is, some of you have tax compliance issues and what makes this whole FATCA discussion such a sore point is the fact that FATCA is forcing a lot of people to think about their individual situations and perhaps make some decisions about it which they wouldn’t have to had there been no FATCA.
What I see which really makes me sad, as I have said before, is that many people are about to make major financial life decisions based on incorrect assumptions and theories which simply do not hold water. Many people are going to be driven further under ground and others are going to make some very serious mistakes which are likely to further complicate their lives, far beyond they already are.
@Steven: “We certainly know that OVDI is not for everyone and we also know that applying some of the FATCA principles to certain people with little or no connection to the States makes no sense.”
Thank you for your admission that both OVDI nor FATCA were poorly conceived and implemented. I’ve mentioned this before elsewhere, but a major factor is not the current known bad laws, awful though they are. It’s the future unknown and even worse laws that congress will surely pass as their desperation to control capital movement continues.
For folk with a quality second citizenship remaining a US citizen makes no sense. And people considering immigrating to the US will see other countries as more welcoming. US immigration professionals have for some time been advising against taking out either a green card or US citizenship. The message is starting to permeate.
@Steven: “…others are going to make some very serious mistakes which are likely to further complicate their lives, far beyond they already are.”
Interesting comment. Please could you expand on it. Presumably you’re not alluding to renunciation. My experience has been that disconnecting from the US made my life *immeasurably* easier and simpler.
@Steven: “…others are going to make some very serious mistakes which are likely to further complicate their lives, far beyond they already are.”
I think not. FATCA will force what I believe will be merely an acknowledgement of reality. The United States is debasing its currency and is living on borrowed time. Investments in the United States are a serious problem. It is still the biggest economy in the world, but bad policy can turn that an a dime, from a desired market to invest in, to a mass exodus–and this exodus will include not just foreign investors, but also the sovereign society types, growing larger in number by the day as the rhetoric against those who don’t pay their “fair share” continues to grow–rhetoric which is lie, when you consider that the 1% pay 40% of the tax. Even your hollywood liberals and professional sports celebrities will start moving at least some of their money to more friendly jurisdictions (some already do that).
So I predict that FATCA will have the opposite effect from the intention. Instead of less money fleeing the US it will result in a massive flight of capital. And as I said, this will take place in the weeks and months leading to implementation–indeed, it is already happening.
The biggest mistake that anyone can make today, is to leave their money and their investments in the United States. I decided that when I saw the first Obama administration budget, and I began a few months later to actively short the US dollar in favour of physical gold and silver trusts, Canadian oil & gas companies, and Canadian gold mining companies. When the exodus happens, I hope I am ready.
So yeah, Steve, everyone wants to go to the states. Your poor and wretched. But where are the wealthy going? And why is it that so many of us just normal Expats can’t get rid of US citizenship fast enough? Aren’t we the canary in the mine?
@Peter, to be fair, nothing is set in stone. If they see capital whizzing out of America, they can change the rules in the middle of the game, which is US is notorious for doing. I’m still bearish on the US anyway though…
@Steven, as I stated somewhere else on here, all of the bank here, except 1 have a presence in the US. That 1 small bank is terrible and has terrible lines, and I have heard they are very sloppy with customers’ money. Had this FATCA never been concocted, I would really have no legitmate reason to renounce. I was just telling my wife earlier that I think a lot of Americans are going to regret not getting citizenship earlier where they are residents. I already regret it. I was eligible 4 years ago, but didn’t think about it because I never foresaw this FATCA coming.
This is also not a Canadian-specific issue.
This is dated, but this is why I think that Urugay, the ex-“Switzerland of South America”, was the test ground for the FATCA rules.
Notice there are banks that flat-out prohibit US Citizens from opening a bank account. http://urufish.wordpress.com/2007/07/07/opening-a-bank-account-part-ii-american-citizenresident/
@geeeez “to be fair, nothing is set in stone. If they see capital whizzing out of America, they can change the rules in the middle of the game, which is US is notorious for doing. I’m still bearish on the US anyway though…”
Indeed, but the problem I think is that rather than making the right decisions they will make wrong decisions which will actually make things much worse. There are couple of escape movies that I love: Cry Freedom, with Denzel Washington, where a journalist with the Steve Biko story flees South Africa; Not with out my daughter, with Sally Field, where a woman smuggles her own daughter out of Iran. Of course there are numerous films of people, especially Jews, fleeing Nazis (e.g., The Sound of Music). The only ways to stop the flight of capital is to lower the tax on the wealthy–then it will want to stay, and that is the the democratic way–or to become totalitarian. But totalitarianism doesn’t stop the flight–it just makes the risk of doing so worth it. The United States is reaching that point. The risk will soon be worth it. The sovereign types, and even some other investors, recommend putting a substantial portion of your money in other jurisdictions and make sure that you also have the ability to put your body and your family there if you need to. I.e., they are recommending a second passport and an escape plan.
@Steve Mopstick, Thank you for responding! 🙂 I actually live in the UK rather than Canada, another higher tax jurisdiction (and obviously not a tax haven).
I actually don’t mind keeping my US investments in the USA but the problem is that they’re now telling me that they will probably have to close my account because they can’t have me keeping the account open when I have a UK address. The whole situation is ludicrous. I’m just trying to become compliant and yet feel caught in the crossfire of all these new regulations.
I have no plans ever to leave the UK so it makes sense to have all my assets there because I use the British pound. I have opened a US-compliant investment portfolio through a specialist brokerage who had me fill out the w-9 that allows them to report to the IRS. I’m not happy about this but am willing to cooperate.
But the point I’m making is that to even move this US money to my UK account which is US-compliant, I will have to pass it through my non-compliant local bank account to transfer it to the investment portfolio that’s compliant. See how crazy this all is?
I agree that it’s not so much the IRS who are at fault as Congress who have passed all these onerous laws. The last thing I am is a tax cheat and definitely don’t’ feel that OVDI was appropriate for me. I just want to put everything right, have paid what I owed in US taxes, and want to do it right going forward so I don’t have to renounce because in spite of my anger, I am still a loyal American citizen. It’s about family honour with me.
But if this can’t be resolved, I may have no other choice but to renounce so to make my life liveable. I earnestly hope that the rough edges of FATCA will be smoothed sufficiently so I won’t have to do this though. I would normally consider renouncing a wicked act but these are unprecedented times. People are genuinely frightened for their futures. And yet, it would seem that we’re not the sorts that FATCA was passed to target; after all, we’re not whales.
What I need to know is if I can transfer my US assets to the UK NOW without dealing with the 30% withholding. My impression is that I still could because FATCA starts from either early 2013 or 2014, though realize that people like myself will have to report all their foreign assets not only on FBAR but also 8938 from this 2012 tax season for 2011 tax year…
I just want to have peace of mind and be able to live with all this. I don’t want to do anything drastic but can understand why people feel the need to do so, given how onerous it’s all becoming.
As an aside, it’s crossed my mind to train up as an enrolled agent because I could learn to file expat tax returns. It will obviously be a growing industry, LOL 😉
@Mona You will probably know in the months leading up to the implementation of FATCA whether there is the possibility of moving funds from the US to Britain. If your British FFI remains FATCA compliant, then you shouldn’t have to worry about 30% withholding. In the meantime you could leave your money in the US, but if there is a mass exodus, as a I have suggested may likely happen, the first ones out the door will be doing much better than the last ones.
@Petros, I tend to agree. I would have to initially send it to a non-compliant bank (‘building society’) to pass it through to the compliant investment account I also have over there. I am going to try and remit the funds as soon as I return to the UK in about a week. I will obviously have to write to the US account to request the transfer. It should go smoothly but it gets technical about what info I have to exactly give them so they can proceed though.
I agree that I would feel safer having all the assets over in the UK, where I permanently live. I would imagine that my main issues going forward will be the tedious reporting requirements and accounting costs. Because I will have consolidated my accounts and moved into compliant investments, I would imagine that my future US taxes (after the 2012 tax year so 2013 tax season) will be minimal, thankfully.
I may eventually be able to use Turbo tax or switch to a less expensive accountant once my statutes of limitations have run because my situation will be a lot simpler to deal with.
the immigrants are one of those who has been affected the most.
More so those who had left assets in their home country when they came here. Due to the difference in tax laws and non availability of tax credits for certain investment in their home countries it is a big mess. Between the lawyers and the IRS bleeding them i am not sure if there is a way out of this ovdi mess.
@kumar exactly! the IRS wants the public to think they are catching and punishing people “hiding money” in the Cayman Islands. But in reality the people they are actually catching and fining are people who live overseas (emigrants) or used to live overseas (immigrants) and have bank accounts in those countries. Phil Hodgen calls this the “shoot-a-jaywalker” approach to tax enforcement.