If you’re an American expat in Taiwan, or an immigrant from Taiwan living in the U.S., or even a former immigrant who went back to Taiwan after you got your green card or U.S. passport, look out: your bank in Taiwan wants to sell you and your kids down the river in order to cut their costs of complying with FATCA. Here’s two recent items of coverage from Taiwan newspapers that I’ve translated into English.
These articles demonstrate a pattern of behaviour we’re seeing in country after country: banks do not care about their customers, but only seek to reduce their costs by whatever means necessary. Since they’ve come to the conclusion that they can’t fight FATCA, they’re happy to ask governments to put national privacy laws in the shredder, as long as the banks themselves don’t have to take the blame or bear the costs.
The first article is a brief, just-the-facts-ma’am report which clearly attributes the advocacy for an inter-govermental agreement solely to the Bankers’ Association, and doesn’t try to shill for such an agreement:
Banks hope government will come forward on reporting of U.S. tax information
24 February 2012, United Daily News reporter Chiu Chin-lan, Taipei
The Bankers Association [of the Republic of China on Taiwan] held a seminar yesterday to discuss the latest developments on the “U.S. Foreign Account Tax Compliance Act” (FATCA) which imposes tax on Americans’ overseas assets. Banks mostly hope that the government can copy the practise of the five countries in Europe, so that the problem of overseas account taxation can be resolved “government-to-government”.
FATCA will come into effect on New Year’s Day in 2013. In the future, “foreign financial institutions” as defined by the law will have to report the account information of U.S. tax residents (including U.S. citizens, U.S. green card holders, and long-term U.S. residents) to the United States’ Internal Revenue Service. If financial institutions do not obey, beginning in 2014 they will face a punitive withholding of 30% on income arising from their U.S. investments.
FATCA’s impact on financial institutions is quite large. The other day, the U.S. published a draft of the implementation regulations. Although they loosened the reporting thresholds, which should help to ease the finance industry’s burden, finance industry personnel believe that the only way to truly relieve the pressure and difficulties that financial institutions face is to adopt an intergovernmental model of cooperation like the five-country European plan.
The second article is a longer item which demonstrates an important principle of journalism: “less is more”. The article would have been much better if the journalist had included fewer details, since all of the details she gives are accompanied by shilling for the Bankers Association’s view. A couple of months ago on my personal blog I translated one other item by the same journalist. That was much more balanced than this one, so I’m surprised by this sudden drop in quality.
A solution to U.S. FATCA tax collection: Taiwan and U.S. may sign agreement
24 February 2012, Apple Daily reporter Liu Pei-chun, Taipei
There may be a solution to the U.S.’ giant plan to collect tax all around the world, by adopting the model of cross-border governmental cooperation, to avoid having to deal with every financial institution around the world. That is to say, if Taiwan and the U.S. sign a FATCA accord, the country’s banks will be free of taxation by the U.S., will not have to report, and will not have to close uncooperative accounts, because under an international governmental agreement, the country’s banks will not need to directly sign agreements with the U.S. side, and will not violate the Personal Information Protection Act.
Adopt cross-border governmental cooperation
Once Taiwan and the U.S. can sign a “FATCA accord”, both sides’ governments will exchange information on a reciprocal basis with the aim of attacking cross-border tax evasion. For example, the U.S. will first provide Taiwan with the names of 100 U.S. citizen customers who are evading taxes, and Taiwan will give those names to the finance industry for investigation.
That is to say, if a cross-border agreement can be reached, banks will not need to take up the burden of “identifying potential U.S. [person] accounts” and will not need to close uncooperative accounts, while U.S. citizen customers who open accounts at banks will not need to worry that information will get sent to the U.S. as long as the amount exceeds US$50,000 (roughly NT$1.5 million).
The Bankers Association’s board yesterday released its report, and will also consult with the Financial Supervisory Commission. It is understood that even if the U.S. and Taiwan do not have a [double] taxation agreement, they can still sign a cross-border FATCA accord.
I translated the phrase “只要超過5萬美元也不必擔心資料會被報送到美國去” as “will not need to worry that information will get sent to the U.S. as long as the amount exceeds US$50,000”. This makes absolutely no sense even in the original. Either the journalist is under the bizarre impression that U.S. Persons will be thrilled that the bank automatically sends their information to the IRS, or she left out a “does not” before “exceeds”. I’m guessing it’s the former, as the whole tone of the article makes it very clear she only talked to the Bankers Association, not any of the hundreds of thousands of dual citizens in Taiwan who might be affected by FATCA. Going on with the article:
Country’s banks will be free of U.S. tax
According to the Bankers Association’s report, the U.S. side has already signed up five countries (the U.K., France, Germany, Italy, and Spain) as “FATCA Partners”. Under their agreement, information will be shared and exchanged across borders at the governmental level. The financial industries of these five countries will report the information directly to their home country governments, instead of reporting it to the United States.
Under this agreement, FATCA Partner Countries consent to three feasible mechanisms. These five countries’ financial industries must gather and report to their governments all the information required for execution of tax collection. Next, the financial industries must also establish substantative review procedures to distinguish U.S. accounts. Finally, on a basis of automatic information transmission, the governments will transfer to the United States all the information reported by their financial industries.
The United States also pledged that FATCA Partner Countries’ financial industries will not need to directly sign agreements with the U.S., will not have to transmit customer information, and will not have to pay tax. Furthermore, based on the premise of reciprocity, the U.S. government will gather and send information about the accounts of U.S. citizens domiciled in the Partner Countries, which those Partner Countries will then use to investigate tax evasion.
There are a lot of dual citizens in Taiwan, spread out on both sides of the political spectrum. If you know any, or know anyone who has parents in Taiwan, tell them to write their legislators and oppose the Bankers’ Association’s plan to sell out Taiwan’s sovereignty and shred its privacy laws in order to save a few dollars.
@Eric
I’ve tried, in vain, to warn my friend who is a Taiwanese-American (Moved there when she was 13, obtained citizenship after five years, and moved to the EU after University). It took me months to convince her that FATCA is real, that she had to file FBARs and that the US taxed worldwide. This was bizarre since she knew that her parents had renounced permanent residency status for these exact reasons, but she seemed to be under the impression that all of the above didn’t apply to citizens!
She is moving back to Taiwan now and seems to think that FATCA won’t apply to her since she’ll only be using a Taiwan passport with a Taiwanese birthplace and believes that she’ll never be “found out”, as it is. She opened all of her EU bank accounts with a US passport and they were all over 10,000 dollars for years (since 2007 or so). She is closing them now and hoping that they won’t be retroactively reported in 2013 – Can anyone confirm whether closed accounts are also going to be reported, because if so she will be facing big fines 🙁
The worst part is that she told me her cousin is specifically trying to get his pregnant wife to visit some relatives in the US in order to give birth there so that the child can have the extra passport. They have no interest in moving to the US and are only interested in having it “just because”. I’ve tried to get her to contact her cousin about FATCA, FBARs and the lot, and about how her cousin is risking financial ruin by inadvertently listing his future US-born child on joint accounts and then not reporting them in the future, all just to get a passport that they don’t need! They just don’t seem to get how dangerous the US has become and still view it as the best second passport possible!
I will forward some of these links mentioned in your article and maybe that will change her mind with regard to the huge risks that she and her cousin are taking! I doubt it though, since talking to naturalised US immigrants is often worse than the brick wall of the “homelanders” with regards to these issues: in my view they view the US with a special light that makes it very difficult to accept that the government there has turned predator and hostile, and dismiss all of this as nonsense. This will be a hard fight for sure.
@Don…
You might also suggest she read some of the many comments / questions of many of the immigrants that are now asking questions about what to do in the OVDI that are over at Jack’s blog. Just tonight were a bunch more new ones logging in. Maybe if she just reads ij dilemmas that will get the message across. I would have her read these two..
http://federaltaxcrimes.blogspot.co.nz/2012/01/irs-re-opens-offshore-voluntary.html
and this one…
http://federaltaxcrimes.blogspot.co.nz/2011/12/opting-out-of-ovdi-and-ovdp-what-is.html
Both of these are getting pretty lengthy, so she will have to hit the “load more” option at the bottom. I am see new names and anons that have not been there before, and many of them are immigrants.
As I predicted the banks all over the world will cater to FATCA. I am not sure how reciproclty will work. Will all US banks send reports on the millions of dual citizens and resident aliens living in the USA to their original countries? Will this be necessary since these countries do not tax their residents abroad?
There are some new articles on double taxation and FATCA that have been added to this thread: http://genevalunch.com/blog/tag/fatca/
At least the Canadian Bankers Association in this article admits to the severe legal conflict regarding FATCA and existing Canadian law.
http://www.cba.ca/en/research-and-advocacy/47-regulatory-enviornment/598-foreign-account-tax-compliance-act-
Taiwan needs US protection from his big brother China. They will do whatever US wants to do.
@ij
I agree completely ij. If your looking for a country to fight this it isn’t going to be Taiwan.
@ij & tim: yeah, I don’t expect much fight out of Taiwan’s government … the legislators and ministers themselves probably love the idea of the government-to-government agreement so they can pick all their lovers’ & business partners’ information out of the data stream before it gets sent to the IRS.
But Taiwan does have a long history of pissing off the US when they think it’s in their own interest. My grandma lived right down the street when the KMT’s gangbangers murdered Henry Liu (劉宜良) in Daly City (near the San Francisco Airport). The guys who did that barely spent five years in prison in Taiwan before they got pardoned. Now one of them runs a movie company and the other one’s kid is a famous actor.
@Don and Marvin – I’m hearing the same thing. “It doesn’t apply to me,” “the U.S. can’t enforce it,” or “they can’t catch me because I’ll just use my other passport.” It’s very frustrating.
Correct me if I am wrong, but I don’t see how the US can impose fines on expats.
Unless you file taxes in the US regularly, you drop off their screen.
How does the US even know whether you are a citizen or resident? One generally has to prove one is a citizen or resident in the US before receiving services from the US.
Unlike most developed countries, the US does not keep a list of its residents. There is no national identity card. There are many unregistered immigrants, and many want to keep it that way.
To file taxes in the US one needs a valid social security number, which one has to apply for. Yes, one has to apply to file taxes in the US.
Believe it or not many unregistered immigrants try to pay taxes with fictitious or stolen numbers in order to gain legitimacy. The IRS rejects them.
The IRS is such a big mess, it is incomprehensible to most Americans, never mind in an orderly country like Canada or Western Europe.
I think FATCA, OVDI are all big bluffs. The IRS and DOJ are 90% bluff, in my opinion.
Dual citizens (or residents) that I know in the US keep their affairs separate, by country. Ie. business in Canada stays taxed in Canada, but not reported to the IRS. Business in the US stays taxed in the US but not reported to Canada. Same with European business, accounts, etc.
Most try to follow a system of rules that makes sense, not what the US Congress or IRS wants.
Please keep in mind that the US was founded by tax-evaders, who did not want to pay taxes to England. Money and taxes were the only reason.
That tradition still remains strong amongst the populace.
M: “Correct me if I am wrong, but I don’t see how the US can impose fines on expats…. How does the US even know whether you are a citizen or resident?”
Because under FATCA your non-US bank becomes an IRS enforcer. It is required to rat you out to the IRS, and potentially send the IRS 30% of your dividends, sale proceeds and so on.
That’s the theory. Whether it is bluff or bluster, and how well it works in practice remains to be seen.
@Watcher & M
What I want to know is how people like my friend will be caught by FATCA. If she is Taiwanese living in Taiwan with a Taiwanese birthplace, I don’t think that the FATCA net will find her right away when it comes out next year in its “Beta” form. I imagine that to really find everyone that this will require some sophisticated information sharing to take place. I wonder if the US will start to share naturalisation records from USCIS with foreign governments so that they can cross check them with their own residents? How else will they be able to “rat out” everyone, especially the people from Asia and Latin America who have returned home?
Also, I read recently that Mexico has a very large number of US citizens, supposedly over a million. Has anyone heard anything about FATCA there? I imagine that there would be a huge uproar if it were well known, yet I haven’t heard a thing!
@Don: “What I want to know is how people like my friend will be caught by FATCA.”
Many UK banks now ask for your citizenships (plural) on opening accounts. And at least one is asking for a US social security number if you have one. At the extreme, non-US banks might insist on either a W8-BEN or W-9.
Of course, one could either omit details or just outright lie (“under penalties of perjury”, in the W8/W9 cases) when your non-US bank asks these questions. But that seems an unsatisfactory solution, and one that most people would probably prefer to avoid if given a choice.
Even assuming FATCA will be implemented, which is a very unsure thing, all the IRS wants to know are the names of US residents. (Not sure how that is defined. I suppose if you have a US address registered with the bank).
The withholding “penalty” is imposed on the bank itself, on it’s business within the US, not on individual accounts. This is to force it to disclose names.
(And this is why it will not be implemented as is. No country will agree to the US taking 30% of their banks money, for any reason.)
The IRS then cross-checks those names (and US addresses) with its records and sees which filers declared or not declared. This is what it normally does with offshore account information it hopes to receive.
If the IRS has no existing records, there is not much it can do.
Where did you read that IRS will ask for withholding on customers’ accounts?
#Don: Eventually, everyone everywhere will be caught up in this if IRS has its way–even Presdident Of United States when Indonesia and Kenya claim him as an “Indonesian Person” and “Kenyan Person” under “reciprocity.”
@Watcher: Scary stuff! Fortunately, it is illegal in Canada for your financial institution to ask for citizenship or place of birth. They can only accept a birth certificate as ID if the birth certificate is Canadian.
I just had my yearly meeting with the advisor of the investment account I have had for over 25 years. She asked me if I was a US citizen, which she has never done before. She says she is now required to ask all her clients, as it is her responsibility to “know her customer” and that is now one of the questions she has to ask. Even though some don’t have a lot of money. I am not very good at lying, so I told her the truth.
She didn’t know what would be done with the information. She didn’t think much would happen. I think otherwise. I am not worried. I have not been hiding anything and it is all on my FBAR’s. But I suspect that is where some will be caught..
I don’t think it will happen with existing regular savings or chequing accounts (since I never see a human being in connection with those accounts) unless something comes in the mail. I am waiting to see what happens with my other “discount brokerage” account which does not entail ongoing contact with an “advisor”.
@Watcher
That’s the problem though – This is assuming that most people are honest and will mention citizenship to their banks. I wouldn’t personally lie if I were asked, but if they don’t ask I certainly won’t tell! The only way that they’ll ever get decent compliance from former immigrants who have returned home or children of US emigrants is if FATCA comes bundled with naturalisation info sharing and the info on who is a US citizen or not is forcibly rooted out.
I think its all bluff until they do so, personally. Compliance rates in Europe, Canada and Taiwan are likely to be high. I don’t think that the same can really be said for places like Latin America, Asia, India, Africa and so on. Many peoples’ local banks probably wouldn’t even have the technological capacity to comply. Even if the top brass sends orders to all local bankers that all new clients should be asked about W-9 this or citizenship status that, are we really to believe that every staff member will be perfectly trained, know what they are doing and be able to comply all of the time? Mistakes will be made, questions probably never asked and compliance likely to remain a fairy tale in many corners of the world. If you are a banker and your friend walks in to open an account and you know that he is a US citizen, who is to say that he won’t ask about his citizenship status? I just see holes everywhere with regards to compliance, and not just on the part of US citizens. The world doesn’t work as squeaky clean as the US legislators imagines that it does!
@M
“Even assuming FATCA will be implemented, which is a very unsure thing, all the IRS wants to know are the names of US residents.”
Not true. If it was, most of us would have no problem with it . What they want is the names of “US persons” which includes citizens (who may be foreign born and never have had any contact with the US besides having a US born parent) as well as some green card holders.
I hope you are right about it not being implemented, but that’s not the way things seem to be going now.
@Blaze
Oh, I agree with you, the key word here being “eventually”. I think that FATCA is still years off from being the all-knowing monster that it is intending to become. As it stands now I think that compliance rates will be laughably low for years and most banks won’t be able to come anywhere near the US deadlines for implementation. The government-to-government “partner” countries will also probably simply withhold the details of “friends” and “benefactors” of MPs or influential people who should otherwise be reported. As I mentioned in my other post just now, I think that FATCA requires a bureaucratic beast to back it up, and a bureaucratic beast on a global scale would seem to be very susceptible to becoming corrupt and inefficient!
@CanuckDoc
Have to agree – US residents can vote for politicians who are beholden to them for re-election and most don’t even pay any tax. They can’t be easily scapegoated as rich layabouts likes expats can. The real target of FATCA is expats. Expect a few actual tax dodgers to be caught who live in the US (such as the 5000 or so with accounts in Switzerland), but the vast majority will be average people “caught” next year due to FATCA who never knew about FBARs or US citizenship-based taxation. Expect another OVDI in 2013-14 in order to guarantee that the IRS can make its cut from all of the millions of terrified US expats who think that they will go to prison otherwise.
I wonder if the FEIE will be done away with in time for big penalties for failing to pay correctly for those who didn’t know when FATCA rolls out as well? You never know.
@CanuckDoc: Did you tell your advisor she was contravening the Canadian Charter or Rights by asking for that information? As I understand it, she had no right to ask and you had no obligation to reply.
I would be very alarmed if someone told me I had to answer that question. If I was refused services for not answering, I would walk out and they would soon have a call from a lawyer.
Tim made a good post from Canadian Bankers Association which includes some info on legal implications of asking these questions.
“She didn’t know what would be done with the information. She didn’t think much would happen.” If she doesn’t know what the info is for, why does she think nothing will happen with it?
Can you imagine asking your patients for their citizenship and not knowing why you needed that information or what would happen to it. I’m sure as you get to know your patients, you sometimes are given that information as part of the physician-patient relationship, but that’s different than requesting it.
As a Human Resources Manager who has hired people for over 25 years, I have never asked an employee of potential employee for personal information until I knew why we were asking for the information (and could explain it to the employee if asked). I certainly knew that personal information was not leaving the personnel file. Even managers could access employee personnel files without written consent of the employee–and I don’t recall one ever asking for employee personal info..
The T4s which go to our employees and CRA. also do not contain information about citizenship–and go only to the employees and CRA. .
This type of privacy is not just the law–It’s common sense and respect–which we all know the IRS is greatly lacking!
@ M: CanuckDoc is right. US is expecting FATCA to apply to any “US person” living outside US. If their intent was only US residents, the intelligent, moral lawyers we have heard about in Washington need to quickly get back to Congress and make changes. the $15 million PR IRS is planning to implement could begin to improve their image by excluding those outside of US.
The real target of FATCA is Swiss banks who will not disclose any names. Names that the IRS would like. (Although it is easy to avoid that requirement by using entities.)
Yes, most minnows are scared and will join out of fear. But there is little to fear, because:
The ultimate purpose is tax money, not disclosure. Disclosure is only a means to an end. So if you don’t have any assets in the US that the IRS can seize, there is little to fear.
Minnows have little to fear because they have little money that would interest the IRS.
If you were a thief, with a large appetite, would you target the rich or the poor?
Use some logic here.
@M: “Even assuming FATCA will be implemented, which is a very unsure thing,…”
Please read the following:
http://www.pwc.com/us/en/asset-management/investment-management/publications/assets/FATCA-faqs.pdf
Take particular note of the definition of a “US person”, the circumstances under which a foreign financial institution must withhold 30% of all payments to some customers, and PwC’s estimate of the chances of FATCA not being implemented.
@M: “The real target of FATCA is Swiss banks…”
Perhaps. But that doesn’t mean that there won’t be significant collateral damage in other areas.
@M: “So if you don’t have any assets in the US that the IRS can seize, there is little to fear…”
How about fearing your non-US bank, in the country in which you and your family live and work, will close your bank accounts out from under you because you are a US citizen, and the non-US bank doesn’t want the hassle of dealing with the IRS?
Because that’s what is already happening in places.