From Accounting Today, Michael Cohn reports that the IRS Issues FATCA Guidance on Reporting Interest Paid to non resident Aliens
The Internal Revenue Service has issued final regulations and guidance on reporting interest paid to nonresident aliens, along with a revenue procedure listing the countries with which the U.S. has a bilateral exchange of information agreement.
So, the speculation that DATCA would not survive might be pre-mature.
The last brick in the foundation of the global Fatca (GATCA) is being cemented in place.
FATCA begets DATCA begets GATCA
I have posted this response. You all are welcome to join in..
Well Michael, I see that DATCA is still not dead. Will be interested to see what the Congressman like Rubio,Boustany,Ron Paul,and the entire Florida delegation that were opposed to this will do. Do I hear “nothing”?
Obviously their letters of protest have had no effect on the IRS or the administration.
As we know, the IRS needs this to make the FATCA reciprocal Tax exchange regime work! In their statements now they are no longer hiding the objective as they were last year. They make it clear that it key to their strategy to overcome FATCA opposition around the world. A global FATCA is being created, and you are one of first and few to know. 🙂
There is a formal list someplace of which area code belongs to which area and country. However new codes do created and assigned from time to time thus banks will need to keep track of these changes.
Oh, great. Canada, the U.S. and two tax havens – all with the same +1 Country Code – should make for some interesting bank responses to FATCA
Very good points! It is a Faux reciprocity, but the other governments will fall for it!
It is like those 1000 pages of free trade agreements that America signs. They are just special provision agreements that mostly benefit US companies. Watch out for the Trans-Pacific Partnership that the US is trying to get NZ and Australia to sign!!
From the US/NZ American Chamber of Commerce.
Jack Townsend is now posting on these regulations…
WEDNESDAY, APRIL 18, 2012
New Regs Require U.S. Bank Reporting of Interest Paid to Nonresident Alients (4/18/12)
Also Phil Hodgen has a good write up on DATCA. I always enjoy his editorial take on things.
More news on DATCA:
Here are the two bills that are purposed to kill DATCA They should just be repealing FATCA instead, as that would surely kill DATCA, but this is an effort to take away the bargaining chit power of the IRS
The Posey bill is H.R. 2568.
The Rubio bill is S. 1506.
We should all be watching to see if they die in conference or make it on the floor for debate!
BTW, if anyone wants to read the actual regulations on DATCA, here it is… It is only 20 pages, so there must be an error. Somewhere 400 pages or so must be missing.. 🙂
@justme- considering the Canada is the only country that the U.S. has an automatic exchange agreement with I can see why Minister Flaherty would be royally angry about Canadian banks being hit with FATCA.
The fact that the U.S. doesn’t believe that the current agreement is adequate is because the automatic exchange agreement that is in place between the two countries only covers Canadian citizens with Canadian addresses who are resident American citizens and American citizens with American addresses who are resident in Canada.
Whereas FATCA is looking for Americans who are resident anywhere without regards to their immigration or citizenship status.
I hope that I got it right.
They have to report payment of interest as low as $10? Are they kidding? Only a government agency would not recognize how wasteful that is. It costs more to report it than it’s worth.
@recalcitrantexpat You got that right!
@omghesstillanamerican Amazing isn’t it, but it is just like the 1099 requirement for US citizen/resident interest reporting. I even got a 1099 from the IRS for the small amount (slightly larger than $10) of interest they paid me while they were holding my money they had to refund. So, they create more work for themselves!
Reading the regulations one BIG loophole is apparent…
Accounts must only be declare if interests of $10 at least is PAID to the foreign owners. With interest rates so low, they can shift to non-interest bearing accounts and still maintain their secrecy. America can remain a safe haven for hidden funds!!
You wonder how long it will take to figure that out, or is it by design? Offer something that isn’t really reciprocal if it is interest driven, for FATCA requirement that is ownership driven. Not exactly apples to apples, is it?
I think that is to Moby’s faux reciprocity point above!! Gosh those Kiwis are bright!
………..”In many cases, the Treasury reiterates, the implementation of FATCA will also require the cooperation of foreign governments in order to overcome legal impediments to reporting by their resident financial institutions. The new regulations will therefore facilitate that intergovernmental cooperation on FATCA implementation.
The IRS is also expecting that the reporting of information required by the new regulations will directly enhance US tax compliance by making it more difficult for US taxpayers with US deposits to falsely claim to be non-residents in order to avoid US taxation on their deposit interest income.
However, given the above, the Treasury took some time within the guidance to try and assuage concerns that the information required to be reported under those regulations might be misused. Deposit interest information will not be shared with a country that does not have laws in place to protect the confidentiality of the information exchanged or that would use the information for purposes other than the enforcement of its tax laws, the Treasury stressed.
It is re-emphasized that information will only be exchanged with foreign governments with which the US has a TIEA, all of which require that exchanged information be treated and protected as secret by the foreign government and prohibit the use of that information for any purpose other than the purpose of administering, collecting, and enforcing the taxes covered by the agreement. Absent a TIEA, it was confirmed that the IRS remains statutorily barred from sharing return information with another country.
Both the Treasury Department and the IRS, therefore, believe that the regulations “should not significantly impact the investment and savings decisions of the vast majority of non-residents who are aware of and understand these safeguards and existing law and practice.”
Nevertheless, it should expect that the issue of the new reporting rule will still elicit strong concerns in Congress regarding the effect it will have on US financial institutions, as many banks that hold significant non-resident funds remain convinced that it will indeed lead to a flight of non-US capital and could threaten their viability.”
“Giant Sucking Sound Reportedly Heard In Downtown Miami”
by Charles (Chuck) Rubin on 4/24/2012″
……….”Let’s talk policy for a moment. Capital, and the jobs, economic growth and prosperity that accompany capital, flow to where it is treated best. For many years, the U.S. has recognized that not taxing bank deposit interest of nonresidents, and not reporting such interest income to their home countries, has incentivized depositors to put their money into U.S. banks and branches. For both legitimate reasons (e.g., concerns about kidnappings and home country violence, general privacy concerns, and fear of oppressive or corrupt governments), and non-legitimate reasons (e.g., home country tax evasion), there are significant deposits that are here only because of lack of taxation and lack of reporting. With one Treasury Decision, the Treasury Department has reversed this policy for the sake of being able to garner reciprocal disclosures from foreign governments for U.S. persons keeping money abroad. At some point, the benefits of increasing U.S. tax revenues by forcing the disclosure of every last dollar abroad by every nefarious tax evader will be outweighed by the lost capital and opportunity costs, and compliance costs, of an oppressive reporting and compliance regime. Between the egregious FATCA reporting regime that is presently being phased in, and this type of reporting, that line has likely been crossed.”………
Thanks for that Badger. I am happy to see that others are seeing the connection they way I have. The more that write like this, the more likely it is that FINALLY, some journalist from a large publication will begin to get it and report on it.
Thanks for posting this.
Here’s another in a similar vein;
One rule for the US, and another for all the rest of us.
“Foreign deposits could leave Valley banks under new IRS regulation
April 28, 2012 6:54 PM
Jared Janes, Twitter: @moncounty
““There’s a major element of trust, not because they’re trying to evade taxes but because of the mere fact that the United States is seen as a country that is strong and secure.””……..
…….”Frank Keating, the president of the American Bankers Association, said “nonresident aliens are unlikely to feel reassured by promises that their information won’t fall into the wrong hands.”
“This rule gives nonresident aliens every incentive to pick up and move their deposits elsewhere, at the expense of community banks and our national economy,” Keating, former governor of Oklahoma, said in the statement. “The U.S. already has attracted these foreign investments, and to discourage them now will have a dramatic impact on communities that rely upon them.””……..
“Banks worry about new rules”
Austin Business Journal by Vicky Garza, Staff Writer
Date: Friday, April 27, 2012, 5:00am CDT
Proposed IRS rule worries Texas banks
Run on banks feared
“The Texas banking industry may see billions of dollars withdrawn by foreign investors — mostly from Mexico — before the end of the year if a new rule passed by the Internal Revenue Service stands. And that possibility has banks and lawmakers scrambling to try to change it.
The IRS rule finalized April 19 requires U.S. banks to report any interest on deposits paid to nonresident aliens.
“It contravenes the policy in place over the last 90 years to encourage foreign depositors to invest in U.S. financial institutions,” ………
“Run on banks feared”
Austin Business Journal by Collin Eaton , Contributing Writer
Date: Friday, February 24, 2012, 5:00am CS
“For decades, the U.S. financial system has profited from foreign depositors parking their cash in U.S. banks, boosted by a tax-haven image.”…
…..”Because banks report total foreign deposits rather than of individuals and businesses, it’s difficult to estimate how many depositors’ dollars are at stake. Banks would have to pay for new systems to track that data.”
“But informal estimates of foreign deposits in the state’s banking industry vary from $3 billion to $20 billion, according to the Texas Department of Banking and the Texas Bankers Association, respectively. In lending power, using a typical formula that every dollar of deposits can be loaned up to nine times, that’s up to $180 billion of potential local businesses — a huge loss for the state if depositors pull their money, said Eric Sandberg, president and CEO of the Texas Bankers Association.”
“Somebody really needs to figure out the economic impact it could have on border states like Texas,” said Geoff Greenwade, president and CEO of Houston-based Green Bank. “I think this could be a much larger dollar amount than anybody has imagined.””
Oh, the irony of it all – see the comments about the cost to implement it – and invest in new systems to track the data… and the assurances that the affected depositors aren’t trying to hide anything, just concerned about their safety and that of their account information…..and the question of whether the US has profited by the image of being a tax haven for the purpose of attracting foreign depositors.
and then, apparently, there is the US state of Delaware:
SD Dyreng – 2011
“Exploring the Role Delaware Plays as a Domestic Tax Haven”
“Offshore tax havens, such as the Cayman Islands, have been shown to facilitate corporate tax
avoidance. However, academic research has overlooked the possibility that the state of
Delaware could serve a similar role domestically. We find that tax factors play an important role
in determining where to locate subsidiaries and that these factors are economically larger than
the legal and governance factors that are typically considered important determinants of
incorporation decisions. In addition, the tax savings of placing subsidiaries in the state of
Delaware are economically meaningful. For firms that appear to engage in tax strategies
involving Delaware, we find a reduction in the state effective tax rate of approximately 1.5
percentage points, which is similar in magnitude to the tax savings of having foreign haven
operations. Our results are consistent with Delaware serving as a domestic haven against state
A Policy Analysis from the Center for Freedom and Prosperity FoundationJune 2006 Vol. VI, Issue III
‘Tax Havens, Tax Competition and
By Yesim Yilmaz”
“The United States is the world’s largest beneficiary of tax havens and tax competition,
both because the U.S. is a tax haven for foreigners and because tax havens facilitate the
flow of capital to the American economy. Foreigners have more than $11 trillion
invested in the U.S. economy, including more than $7 trillion invested in America’s
financial markets. Nearly $1.3 trillion is placed in the U.S. financial system by
Caribbean institutions. This money helps finance America’s economic growth.
More about Delaware – the US very own personal tax haven (along with Florida and Oregon );
“USA Tops International Tax Haven List, Thanks To Delaware”
First Posted: 03/18/10 06:12 AM ET Updated: 05/25/11 03:30 PM ET
“The Government Accountability Office likes to point its finger at Luxembourg and the Cayman Islands for sheltering tax cheats. But according to the U.K.-based Tax Justice Network, the United States is the biggest tax shelter of ’em all, thanks to the great state of Delaware.
Delaware, says the Tax Justice Network, is “the most secretive financial jurisdiction in the world.” That’s based on an analysis of 60 financial jurisdictions according to level of secrecy and cooperation with foreign tax authorities.
Luxembourg comes in second, followed by the Switzerland, the Cayman Islands, and the United Kingdom.”
“Over the past century, the state of Delaware has gradually transformed itself into the nation’s onshore tax haven by building an incorporation economy of such scale as to be nearly impossible to compete against. It’s a volume business, and Delaware draws the lion’s share of volume.
With a population of less than 900,000 and stretching all of 96 miles at its longest point, Delaware is the state of incorporation for 52 percent of all subsidiaries in the study’s sample. To put that into perspective, California—with an economy that accounts for 40 percent of the nation’s GDP—is a distant second with six percent of subsidiaries. “Against all benchmarks,” Thornock says, “Delaware has an abnormally high number of subsidiaries.”
While those subsidiaries loophole their way out of paying much of the statutory tax rate, there are so many of them that the combined corporate taxes and franchise fees account for 20 percent of Delaware’s annual revenue.”
“But the minimal effort, coupled with fairly low fees, isn’t the only draw of such entities based in the tiny state just 90 minutes north of the nation’s capital. More important for many is the fact that they come with a degree of anonymity usually associated with bank accounts in Switzerland and other stereotypical offshore tax havens in the Caribbean and elsewhere.”………..
Friday, June 3, 2011
“Is Delaware to be blacklisted?
The Brazilian government has threatened to do so by including the state on its list of tax havens.”…….
………”Brazil isn’t the first country to target Delaware for its lax business laws, and Delaware isn’t the only state so targeted.
No less than the Prime Minister of Luxembourg has criticized Delaware as a tax haven; the vice chair of the Cayman Islands Financial Services Association has characterized Nevada and Wyoming the same way. And in November 2009, the Tax Justice Network released its “financial secrecy index,” putting the United States at the top of the list and highlighting Delaware for its lack of corporate transparency.
If Brazil puts Delaware on a blacklist of tax havens, Geisenberger said, “I would imagine that we would advocate that every U.S. state be put on a blacklist, given that every U.S. state mirrors the Delaware [LLC] models.””…….
You have been busy! Thanks for taking the time to put all those links up here…
I have been able to access them all except the one from the Monitor… The server must be down, but will keep checking…
Yes, America is the Biggest Tax Haven in the world!!
I concur. Those are great links. Thanks so much, Badger, for doing the research and posting the links. Really helpful.
Thanks, Badger and all — one rule for the US, and another for all the rest of us.
DATCA would only be reciprocal if ALL USA banks had to identify tax-obligations of ALL it’s customers (US citizens included) in relation to ALL other countries and then remit that information DIRECTLY to the tax authority in each customer’s country-of-tax-obligation. Can you imagine the uproar in the US!?
I agree with Moby:
Reciprocity? No. Hypocrisy? Yep. B#llsh&t? Most definitely.