I found an interesting article on FATCA at Financial News this morning that for an “industry” publication is the first I get some sense that they are getting it. A couple of interesting quotes:
“Once countries have got the structure in place to comply with US Fatca, their governments won’t just say, ‘we’ll bear the costs of helping the US gather its tax and leave it at that’. Something will happen.”
That “something” will not be a repeal of US Fatca, Fleming said. The realistic options, he said, are either that every country develops its own version of Fatca, or that a “global Fatca” is developed, where every country has to disclose the assets of every other countries’ citizens under a common framework. He said: “There will have to be a ‘global Fatca framework’ – the alternative is even worse. We couldn’t operate on the basis of 27 Fatcas in the Europe Union, say.”
The significance is enormous, he said: “It will be a global tax system. It is impossible to comprehend how you maintain national tax integrity under such a system; how you get to a global Fatca is an immense challenge.”
A few points they seem to be making:
Many in the financial industry are increasingly taking the view that FATCA and any copy cat legislation is going to be an overriding issue for the rest of the decade.
In closing the authors state that they in fact think the US is playing a “long game” of trying to determine the world’s taxation model.
Unfortunately this article now seems to be pay-walled, but you can sign up for a free four week trial.
http://www.efinancialnews.com/story/2012-03-27/fund-managers-predict-global-fatca
@UncleTell
Interesting on the paper by Edward A. Zelinsky. So, in a theoretical world he thinks Citizenship taxation is more administrable…
“None of these models justifies the worldwide taxation of U.S. citizens on a benefits basis. Rather, such taxation is persuasive because of administrative considerations, i.e., the close resemblance of domicile and citizenship that makes the latter an administrable proxy for the former”
Guess he has never had real world experience with how the IRS administers anything! 🙂
@Uncle Tell
I remember reading that article. The most interesting part is in part VII on page 1345 (I can’t see how to copy it) where he admits that there might be “relatively few” and a “comparative handful” of people for whom citizenship is not a good marker for residence. But apparently he thinks the harm done to us is insignificant compared to the benefit of not having to worry about defining actual residence.
Uncle Tell,
Edward A. Zelinsky’s paper justifying “citizenship-based taxation” is like former Justice Dept official John Yoo’s memo justifying the use of torture for the Bush administration.
http://en.wikipedia.org/wiki/Torture_Memo
Ironically, Yoo is a professor of law at University of California, Berkley, the so-called bastion of liberalism.
Zelinsky’s view is that citizenship should serve as a proxy for domicile. The only way to justify citizenship-based taxation is through make-believe. Because I am a citizen, I am by proxy domiciled in the United States–however, my residence and country of taxation has been Canada since moving here in 1994. He says that anyone for whom this is not the case may expatriate. He seems unaware of the human rights violations that the US commits against those who choose to exercise their fundamental right to expatriate: exit tax, $450 renunication fee, and bureaucratic obfuscation. Zelinsky has thus eliminated international laws of dual citizenship for this “proxy” domicile idea. This is arrogant and stupid, and does not deal with practical realities in the way that the doctrine of dominant and effective nationality does. What happens when a person is dual? Are they by proxy domiciled in two countries?
*Shadow Raider and others
If you read some of Reuven Avi-Yonah more recent papers he is still pushing a move away from citizenship based as part of broader tax reform package and I from what I have heard Avi-Yonah is a pretty influentail guy in US tax policy. Much more than J. Richard Harvey.
The Zelinski paper I don’t think is all that persuasive. Interestingly Michael Kirsch who wrote the first paper in recent years defending citizenship based taxation came out of another paper criticising the legal changes in recent years to try to retroactively apply US citizenship back to individuals who had previously committed relinquishing acts.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=785425
Kirsch continues to defend the idea of citizenship based taxation but indicated it must be done in the context of taxing only people that actually “citizens” under nationality law and indentify themselves as such.
*
*@Petros, I don’t know about other countries, but the UK already has the notion of domicile. To the British tax authorities, I can be tax resident in the UK, even a UK citizen but considered as domiciled in the U.S. I have concluded that the only real way I could completely divorce myself would be to renounce. Holding dual nationality will not offer me any protection. Unlike Canada, the UK has more or less completely sold out to the U.S. I believe the UK has even agreed to extradite egregious tax offenders to the U.S.
I don’t think this will be a major issue for me if I continue to be compliant and file correctly and pay whatever U.S. tax is due, especially as I’m not a whale. But the gist of it is that the UK still considers my U.S. citizenship to be my dominant citizenship even though I live and work, and even have 99% of all my assets in England. They would thus throw me under the bus if there were a major dispute.
@UncleTell, I used some of Paula Singer and Cynthia Blum’s ideas in my proposal, but to simplify it, I used physical presence for only one year, not three, and did not implement an exit tax. If I decide to add an exit tax later, I’ll follow their recommendations like making it as neutral as possible and allowing deferral of payment without interest.
I also read Edward Zelinsky’s paper a while ago, and sent him an email explaining all the inconsistencies in his paper and why I disagree with various things he wrote. He answered that he would think about it. In my opinion, his greatest inconsistency is that he claims that US citizens with permanent resident status in another country have a domicile in the US due to their citizenship, but that foreigners with permanent resident status in the US also have a domicile in the US due to their green card. This is the current all-inclusive but illogic approach of the US, where either citizenship or residence alone is enough to justify worldwide taxation. Curiously, the Philippines, which also used to tax nonresident citizens until 1997, now has the exact opposite approach: it requires both citizenship and residence to justify worldwide taxation, so it taxes nonresident citizens and resident foreigners only on income from the Philippines. Portugal and Israel have similar rules for recent immigrants. Migrant-friendly countries?
Michael Kirsch is not too bad. He supports citizenship-based taxation based on the alleged benefits of citizenship, so he justifies worldwide taxation only on actual citizens, as Tim wrote. Kirsch also writes that a change of citizenship should be allowed freely, as a normal procedure with with no additional taxes or penalties. He criticizes Congress for punishing renunciation of citizenship as if it were something evil.
I also sent an email to Reuven Avi-Yohah, and he answered that he thinks it would be difficult to convince Congress to change to a residential system because such change would reduce revenue. I responded that it is difficult but not impossible, Congress has many times reduced revenue by changing the tax code to provide exemptions for a small number of people that most don’t care about. A good example is the large exemptions and temporary repeal of the estate tax.
Last year, the Senate Finance Committee held a hearing on international tax reform. You can watch it here. I found it pretty boring and couldn’t stand watching it after a while, but I suggest watching Philip West’s excellent initial statement, which starts at 53:20, especially the last 40 seconds of this statement, starting at 57:50. Reuven Avi-Yonah was also at the hearing but he didn’t mention individuals at all, nor did anyone else.
I also sent an email to Philip West with my proposal. He answered that he would try to review it but it would take a while, and thanked me for considering him.
From the hearing, I got the following impressions:
Philip West is a very nice guy who wants to make things right for everyone.
Reuven Avi-Yonah is the most intelligent and knowledgeable person in the room.
Max Baucus and Orrin Hatch are not smart people and don’t understand the details of taxation.
@Tim, Do you really think these tax experts are influential? If so, my emails to them might be more imporant than I thought.
I was at the local Congressman’s office last week. Towards the end of my discussion, the head field rep and I discussed the loss of trade due to citizenship-based taxation (Roger Conklin’s points) versus the deficit crises–his response was that “those guys in Wash are plainly and simply stealing anything they can now” and gave an example of how the feds were literally stealing state assets from them, the most recent example was $700 million. He compared this to my entire schpeal of how US persons were getting screwed. He was a bit cynical but requested my one-pager.
Shadow Raider,
My 2 cents on domicile. FWIW:
http://thelawdictionary.org/domicile/
What is DOMICILE?
“That place in which a man has voluntarily fixed the habitation of himself and family, not for a mere special or temporary purpose, but with the present intention of making a permanent home…”
“In a strict and legal sense, that is properly the domicile of a person where he has his true, fixed, permanent home and principal establishment, and to which, whenever he is absent, he has the intention of returning.”
Maybe Zelinsky is using another definition of domicile or perhaps he has invented another one himself.
*@ShadowRaider
One thing the US Senate could do that would be helpful is to not ratify the new treaty amendments to the US Swiss Tax Treaty during the lame duck session. This treaty was supposed to ratified months ago however, Rand Paul put a “hold” on it. Now according to Jim Jatras holds are not necessarily permanent however, due to unrelated manoveruer to pass another treaty through the Senate back in September on unanimous consent when there were something like only five Senators present there was a letter signed by 35 Senators sent to both party leaders basically saying the 35 Republican and Democrat were opposed to any treaties being approved during the lame duck session.
What happened was Senator Mike Lee(a familar name to FATCA followers) happened to be one of the five Senators present when the majority whip tried to get approval for the United Nations Treaty on the rights of the disabled on unanimous consent. Lee basically hit the roof at this manouvre occuring when basically no one was attending the session. Lee then got 35 Senators(including Paul, DeMint, Coburn, Baucus, Hatch, Chambliss) basically to write a letter saying the would not approve ANY Treaties during the remainder of the Senate session.
Why are the treaty amendments to US Swiss Tax Treaty so important to FATCA. Well the proposed Model 2 IGA between Switzerland and the US can only come into effect AFTER the treaty amendments recieve Senate advice and consent. No Treaty Amendments no FATCA IGA between Switzerland and the US. So Lee, Paul, DeMint et all should be asking the Treasury why the Senate is not giving advice and consent to the US Swiss FATCA IGA at the same time as they are giving advice and consent to the US Swiss Tax Treaty Amendments. If the treaty isn’t approved during the session in the new year as I understand it will have to start right back from the beggining including having hearing and approval from the Senator Foreign Relations Committee whom Mike Lee is a member of.
Here is a link below discussing the whole UN Treaty on the Disabled debacle.
http://thehill.com/blogs/floor-action/senate/250855-gop-blocks-vote-on-treaty-on-rights-for-people-with-disabilities
http://blog.heritage.org/2012/09/21/senate-conservatives-gather-enough-votes-to-block-lame-duck-treaties/
U.S. FATCA will be the first of many, conference hears.
The FATCA Compliance Complex telling firms, that more is coming, so better just get with it, and get ready. What a much of sheep!
GATCA!
Tax talks with HM Treasury over FATCA issue
See the GATCA message below:
Mr Bell said: ‘The issue of FATCA and its implications is not a new one. In my Agenda for Change statement I spoke of a move towards automatic exchange of information becoming the new global standard in international tax co-operation.
‘This movement involves the G20, the OECD, and the EU, as well as FATCA in the US, and not surprisingly we have been discussing the implications of all this with the UK and with our fellow Crown Dependencies in the Channel Islands. The meeting of Crown Dependency and UK Treasury officers was part of the ongoing dialogue.’
He added: ‘I repeat now what I said last month – we need to respond to these changes, not simply because it has been our long-standing policy to meet established international standards, but because a failure to do so will damage our economy in the medium to long term.’
GATCA is here! “The nature of tax cooperation is changing and automatic exchange is becoming the global standard” http://bit.ly/TLWzdt
Joint statement from Jersey and Guernsey on FATCA
GATCA!
From the BBC…Jersey and Guernsey say tax regulation should be global
Jersey and Guernsey do not want to sign up to a tax exchange agreement with the UK unless it is a global regulation.
Officials have met members of the UK government to talk about the Foreign Account Tax Compliance Act (FATCA).
Jersey and Guernsey both have tax information exchange agreements which means they agree to share information on a case-by-case basis.
But the UK wants to adopt the new FATCA regulation, used in the US, which would make this automatic for the islands.
The FATCA rules will force US taxpayers to declare financial assets held overseas and overseas financial institutions to report on assets owned by US taxpayers.
Clamping down on tax evasion and avoidance: Commission presents the way forward
Globalized economy = GATCA I am afraid this is really becoming a force of nature.
Son of FATCA Tax agreement with UK defended by Allan Bell @BBCNEWS
Doesn’t seem to me that it is individual US citizens abroad doing money laundering that is the biggest problem.
It is the banks that are now considered ‘too big’ to fail, and ‘too big to prosecute” http://www.washingtonpost.com/blogs/post-partisan/wp/2012/12/11/too-big-to-fail-becomes-too-big-to-indict/
…….”A money-laundering indictment, or a guilty plea over such charges,
would essentially be a death sentence for the bank. Such actions could
cut off the bank from certain investors like pension funds and
ultimately cost it its charter to operate in the United States,
officials said.
Despite the Justice Department’s proposed compromise, Treasury
Department officials and bank regulators at the Federal Reserve and
the Office of the Comptroller of the Currency pointed to potential
issues with the aggressive stance, according to the officials briefed on
the matter. When approached by the Justice Department for their
thoughts, the regulators cautioned about the effect on the broader
economy.”………..”Already, “too big to fail” allows the biggest banks to act with impunity; if the idea expands to include “too big to indict”
…”The New York Times reports:
State and federal authorities decided against indicting HSBC in a
money-laundering case over concerns that criminal charges could
jeopardize one of the world’s largest banks and ultimately destabilize
the global financial system.“..
http://www.washingtonpost.com/blogs/post-partisan/wp/2012/12/11/too-big-to-fail-becomes-too-big-to-indict/
@badger… These big banks have to be broken up. ‘This penalty for HSBC for dealing with Iran (and frankly I don’t care that they were) is less on an asset basis than the 5% OVDP penalty for accidental Americans who didn’t know they were Americans, should they be stupid enough to join the program. 🙂 Too Big to Indict as too much systemic Risk, is exactly what would happen if these guys decided not to be FATCA compliant. Or maybe I say, signed up as PFFIs, but then just played the audit lottery and did not really do the due diligence required.
Channel Islands Rebuff UK’s FATCA-Style Plans. http://bit.ly/TZFbSJ A crack in the FATCANTICs juggernaut for a global GATCA? FATCASTIC! Maybe not, but it is a push back unless there is a Global approach! Does this promote or set back the agenda?
@badger
Regarding HSBC Too BIG to Exist
@Just Me, I think that these banks like Wachovia and HSBC just count these fines as a cost of ‘doing business’, and count on no-one going to jail. The money they make is obviously worth the calculated risks they choose to make – knowingly breaking the law, and knowing that they’ll never go to trial, and no-one will go to jail. All the executives insulated from any fallout.
….”Hal Scott, director of the Program on International Financial Systems at Harvard Law School.
He
says to forget about indicting a bank: Banks don’t break the law,
people do. And people aren’t too big to fail or too big to go to jail.
Not
a single individual at HSBC has been charged with the very conduct the
bank admits happened, Scott says. And unfortunately, he adds, that’s
probably because it’s just a lot easier to nail a bank. Charging people
with crimes means more trials, which requires more money, time and
evidence.
“You can go into the bank and say, ‘Well, I think you
did something wrong, and I’m thinking of indicting you, and you better
pay a big fine,’ and, you know, they’ll agree to it,” says Scott. “It’s
not their money.””…..
Or, you can just terrorize and scare the very s— out of very ordinary people in Canada and abroad – who don’t have dedicated legal departments to protect them. And who don’t have any way to protect themselves. The IRS and Treasury would rather shake down widows, orphans, grannies, grandpas, families and the average person living outside the US – who has no recourse and no resources, and no US representation. Like shooting fish in a barrel. Or fishing by throwing an explosive in the lake and then scooping up the stunned minnows and sardines in a net.
The FATCA Compliance Complex telling us yet again, that FATCA is here to stay, and throw in the GATCA message.
Hope we can prove them wrong, but it will be tough.
FATCA Requirements Are Here To Stay
So, despite all the backlash and hostility around FATCA, the requirements are here to stay. The increasing number of countries entering agreements shows other governments are open to changes in their tax information reporting and are recognizing the need to address this issue on a global level.