We have a case of dueling editorials in the Miami Herald between Senator Rubio and Rep Posey on one hand, (March 7) and a response on March 15 by Emily McMahon, acting assistant secretary for tax policy, Treasury Department, Washington, DC. I have posted the links in other threads, but wanted to give this duel a little more visibility, as it really represents FATCA vs DATCA battle. Although you won’t see that direct connection in the editorials of either authors. But the EU 5 country FATCA agreement for tax data exchange reciprocity rests on the IRS being able to impose DATCA on US banks. The only place that is pointed out, is in the comments section which I encourage you to read and add your own comments.
Offshore depositors won’t be hurt by Emily McMahon
vs
A destructive IRS mandate by Senator Rubio and Rep Posey
Thanks for posting this, good to see a number of IBS contributors already in the comments section. I also added my words.
@JustMe
There are a couple interesting things looking at this from a Canadian perspective. First is Emily McMahon is a member of the public service effective a Canadian equivalent of deputy minister. Now there are others here with more experience in the Canadian public service than me but I suspect they would all agree it would be unprecedented for a deputy minister in place of an elected MP and cabinet minister to go out and defend a policy of the government against criticism by opposition MP’s. So my question is where is Tim Geithner in terms of defending this policy and who is really making policy Geithner or McMahon.
Second Phil Hodgen made a point on his blog that I am going to respond to later but it basically was that as in the TV show “Yes Minister” politicians really aren’t the ones in control its the unelected civil service. While that might be true in the US it definitely isn’t true in Canada. Every long serving Canadian Prime Minister since Trudeau i.e. Mulroney, Chretien, and Harper have all built and intricate command and control system across the government to centralize power at Langevin Block(The home of the Prime Minister’s Office and Privy Council Office). This especially true of communications and it can be argued these policies go back even pre-Trudeau to Pearson and Diefenbaker. So Harper and Flaherty might decide for some political reason not to fight FATCA but it won’t be because the public service at CRA decide to they didn’t want to fight their “buds” at US Treasury.
If I was teaching a course on Canadian politics(the way Canadian politics really works) for people outside of Canada I would open it by showing the following video.
For better or worse this is way things REALLY work in Canada
Tim,
Thanks for that video…
Geither doesn’t respond to anything, it appears to me, whether it be letters from Congress asking for justification for the actions he is unilaterally taking, to orders from Obama to reign in the “too Big to fail banks” or editorials in the Press by Senators and Representatives. He seems to be arrogantly above it all. He is too busy saving the BIG US banks and telling EU minister meetings on how to bailout theirs too to bother with a little DATCA response.
http://news.yahoo.com/book-treasury-secretary-ignored-obama-directive-220559908.html
http://www.ft.com/intl/cms/s/0/b6defef8-dd6c-11e0-b6db-00144feabdc0.html#axzz1pKctGSNS
Good reference by Phil Hodgen to “Yes minister” and “Yes Prime Minister.” series. They are some of my favorite BBC programs.
@JustMe was writing a response in the wee hours this morning but it just sounded like it didn’t make any sense. 😉 Will try again tomorrow.
When there was no response from Shulman regarding TAD, I ended up watching a c-span video of a hearing between Levin and Shulman with McMahon. Had to do with shell corporations and commodities. Interesting from a personality perspective; Levin didn’t seem to understand that there are certain situations where this is permitted for valid reasons. It’s funny to watch him say he’s going to let it go and then he starts up again. If you have time to waste, here it is (about 30 mins, I think):
http://www.c-span.org/Events/IRS-Commissioner-Shulman-Testifies-on-Mutual-Fund-Policies/10737427633/
@nobledreamer
Thanks for the video… I am just wonky enough to want to waste time on it! If these guys that make the Statutes that we all have to live with, had to live in the real world experiencing the impacts of their actions, maybe they would be able to comprehend something and not be so generous with their admendments. I wonder if Charlie Rangel has any different opinion on offshore issues now? 🙂
Here’s a messsage from Freedom and Prosperity, a Washington “Think TanK’ and, directly below it the response I sent to the persons who wrote it
First, the text of the article:
New CF&P Libertas Paper Outlines Danger of Proposed IRS Interest-Reporting Regulation
(Washington, D.C., Tuesday, March 20, 2012) The Center for Freedom and Prosperity Foundation released today a policy brief highlighting the severe economic damage that would result from adoption of an IRS proposal (REG-146097-09) to require U.S. banks to put foreign law above U.S. law by reporting deposit interest paid to non-resident aliens. Entitled, “Proposed IRS Interest Reporting Regulation Threatens U.S. Economy,” the paper is the second in CF&P’s new Libertas series. The two-page report provides a short history of the 12-year saga of the proposed Clinton-era regulation and explains why it is bad policy.
Link to the Libertas paper:
http://freedomandprosperity.org/2012/publications/interest-reporting-regulation-threatens-economy/
The paper brings four specific charges against the regulation:
1) It will drive capital from the U.S. and harm economic growth,
2) It violates the intent of Congress,
3) The IRS has failed in their legal duty conduct a cost-benefit analysis, and
4) It undermines human rights in many parts of the world.
Andrew Quinlan, President of the Center for Freedom & Prosperity, noted, “For more than 10 years, the IRS has been trying to undermine existing law solely for the benefit of foreign governments trying to track and tax flight capital. This proposal undermines the ability of the U.S. to attract foreign investment, which is why it faces overwhelming opposition from legislators, industry and the public. In spite of these facts, the IRS bureaucrats seem intent on going forward with the rule and placing the interests of foreign tax collectors above that of the Americans who pay their salaries.”
“This is a very misguided regulation that is based on very bad tax policy,” added Dan Mitchell, a Senior Fellow at the Cato Institute and Chairman of CF&P’s Board,”but it’s only the beginning. If the IRS is allowed to get away with writing new tax policy through this regulation, it’s a safe bet that they’ll soon double down and require reporting of other forms of interest and capital gains.”
Link to dedicated CF&P web page on the proposed IRS regulation:
http://freedomandprosperity.org/issues/irs-information-sharing-regulation/
CF&P has also previously released a video on the topic titled, “The IRS Running Amok: Forcing Americans Banks to Put Foreign Tax Law Above U.S. Tax Law.”
Video Link: http://youtu.be/kPVVoqDkLHw
My letter in response
Andy and Dan,
I totally support your firm opposition to the proposed IRS Interest-Reporting Regulation on non-resident alien deposits in US banks.
I you have not already seen it, I draw your attention to the totally off-base “Offshore depositors won’t be hurt” rebuttal statement by Emily McMahon, acting assistant secretary for tax policy, Treasury Department, on the Opinion page of the March 16, 2012 Miami Herald . This was in response to the earlier Opinion Page article opposing the proposed IRS reporting action by Senator Rubio and Congressman Posey.
http://www.miamiherald.com/2012/03/15/2695864/offshore-depositors-wont-be-hurt.html.
This statement attempts to rebut the Other Views Miami Herald article by Senator Marco Rubio and Florida Congressman Bill Posey. Ms. McMahon states the IRS is committed to “maintaining confidential information” even when there are tax agreements. The US has a tax treaty with Venezuela obligating the US to provide that government with tax information which, if it revealed that a Venezuelan resident there, (who might also be a dual US-Venezuelan citizen) has funds in a US bank account, would likely subject them to persecution and confiscation by that left-wing Communist government of their assets in Venezuela . That Tax Treaty also subjects persons in Venezuela with US citizenship to US taxation on their Venezuelan source income. Under US law the US tax cannot be deferred since the Venezuelan income is used for “personal expenditures,” and must be paid to the IRS in US dollars, which can only be obtained on the black market at great risk. Current Venezuelan foreign exchange laws subject persons to draconian penalties including imprisonment and confiscation of their assets for black market currency transactions.
US citizens in Venezuela have to decide which prison system they would be most likely survive since their choice is between violating the US extra-territorial citizenship based tax law, or Venezuela ’s exchange control laws.
The pressure is on the IRS from foreign governments as a direct result of FATCA, enacted in 2010, which obligates every foreign bank in the world to provide full details on every one of their accounts held by “US Persons,” including those minimum-income and middle class US citizens who reside abroad because they are married to foreign spouses or are employed abroad, those who are dual-US citizens because they were born to a US parent abroad (even though they speak no English, have never held a US passport and have never once even visited the US), and those who, under prior legislation, forfeited their US citizenship when they became naturalized citizens of a foreign country – only to have this forfeiture revoked retroactively by a Supreme Court decision that Congress had no constitutional right to automatically revoke US citizenship arbitrarily, when it was not the specific intent of the person to lose US citizenship. This annulled all of those citizenship forfeitures, with neither the consent nor knowledge of these persons, which also made them retroactively subject to US income taxes, FBAR reporting and now FATCA.
So please speak loudly in opposition to not only this proposed IRS policy but also both for the repeal of FATCA and US Citizenship-based taxation; replacing it with the territorial taxation policy practiced by every other nation on the face of the earth, except Eritrea .
Eritrea’s citizenship-based tax policy was condemned by UN Security Council resolution 2023 (2011) approved on December 5, 2011. None other than US Ambassador to the United Nations Susan Rice “led the charge” in securing approval of this resolution condemning this tax policy of Eritrea’s as a human rights violation of its citizens domiciled abroad, by 14 votes in favor, none in opposition and two abstentions.
How ironic that our own government condemns the human rights violation of Eritrea when this exact same human rights violation is enshrined in the tax laws of the United States . What an example to the world of Imperialist US bullying of other nations by emulating our own tax laws.
Is there any doubt why the rest of the world no longer considers the US as the model for respecting human rights?
@Roger…
Thanks for this information and your letter.
I too followed up in support of you. This is what I wrote… (it was much shorter)
Andy and Dan,
I too would like to add my support to your White Paper. However, if I were to have one slight criticism is that it does not tie FATCA to this DATCA style IRS regulation. One begets the other. (DATCA is my acronym for a domestic version of FATCA)
Without these DATCA IRS regulations, the 5 nation EU FATCA pact for reciprocity, fails! Now maybe your White Paper was written this way by design and purpose, as having a narrow domestic focus might get better attention. Americans do not seem to care or know of the impact of FATCA in the 2010 Hire Act on the rest of the world. There was no concern that America was putting US law above all other country laws then, but that is the American Way. No cost vs benefit analysis was done on that one either.
Roger points you to Emily’s McMahon’s rebuttal to Rubio’s and Posey’s editorial a week previous which argues along the lines of your White Paper. If you haven’t read that one, it is here:
http://www.miamiherald.com/2012/03/07/2681514/a-destructive-irs-mandate.html
Here is the drum beat that is going to happen as other countries rollover and accept #FATCA
Mauritius to enter into FATCA Partnerships as other jurisdictions have done.
You would be interested to know that in February last, five European countries – France, Germany, Spain, Italy and the UK – signed a deal with the US. They agreed that they would each enact legislation requiring their local FFIs to collect and report FATCA-style information to their local tax authorities. The European jurisdictions would then transfer the information to the US. Under such arrangements, the withholding on passthru payments would generally only apply to third-country non-participating FFIs. The obligations under the agreement are reciprocal.
http://bit.ly/GIbBuF
@JustMe
Saw that too. It’s interesting that all of the industrial strength tax havens are so eager sign up but where is Canada, Australia, New Zealand, Japan, Israel, China, India et all.
The Biggest Story in Banking, thanks to the IRS…
http://www.forbes.com/sites/kellyphillipserb/2012/03/21/the-biggest-story-in-banking-thanks-to-irs/
This is the money quote to me…
What does all of this mean? Switzerland has changed the game. Nobody wants to be “that guy” who doesn’t comply. Countries want to get off the blacklist. And, Michel adds, there is a “consensus growing that information exchange for tax and fiscal purposes alone is something to be promoted.” It’s not just about fighting terrorism or money laundering anymore. There appears to be a new understanding that information exchange is good for the global economy (Greece, anyone?).
Of course, whether you buy into that logic or not doesn’t matter. What’s done is done and with a couple of pen strokes, the U.S. government – largely acting in response to concerns from IRS – has succeeded in doing what even the Nazis could not do in terms of breaking down the walls of Swiss banking secrecy. That’s huge. And the consequences of that remain to be seen.
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DATCA lives on….
http://isaacbrocksociety.com/2012/04/17/datca-is-not-dead-it-lives-on
http://isaacbrocksociety.com/2012/03/27/a-global-fatcahttp://isaacbrocksociety.com/2012/03/27/a-
November 21, 2012 NOTE: Not sure what to read into this, but both of these editorials have disappeared from the Miami Herald, and you just get the 404 errors. Searches on titles or names yield nothing! I should have kept copies.