Tax Rule Provokes Foreign Banks’ Ire
Takeways:
Whatever lobbying Democrats Abroad and ACA is basically completely ineffective and disregarded if you believe what is said in this article. I might send an email to Joe Green himself to get his reaction. An unnamed Treasury Department official appears to view the Democrats Abroad FBAR/FATCA survey as a “joke” because its anonymous. It appears Treasury has very much made up its mind on this issue prior to next weeks hearing.
If this is a the general attitude the US is going to take the odds of an intergovernmental agreement with Canada are low. In fact there is a pattern here of whenever Ottawa makes noises as in the Barrie McKenna piece a few days ago in the Globe and Mail of some type of compromise the civil service at US Treasury pours cold water over it.
Credit to Steven Mopsick. He has said all along they will push this as long as hard as possible even to the point of this ending up in an absolute legal mess with court fights all over the world.
What is the why?
Treasury believes most individuals will comply and not want to risk never being able to enter the US. I don’t think they really understand the political dimensions of this in Canada yet.
Questions:
At one point the term “Administration official” is used at another “Treasury official” does “Administration official” mean the White House and Obama himself.
@All
One possibility I have thought of is to start lobbying foreign corporations to pull out of doing business in the United States much like in the past other organizations have lobbied companies to stop doing business in China, Burma, South Africa etc. My sense is a lot of foreign companies despite all of the new regulations being imposed upon them extraterritorial including FATCA but several others(Volcker Rule, Dodd Frank, Foreign Alien Torts, Foreign Corrupt Practices Act) still hear this siren call of the great American consumer. Some companies have pulled out such as Sherritt International(that was more like kicked out do the Sherritt’s business interests in Cuba) but Sherritt’s CEO Ian Delaney is a highly respected figure in Canada.
http://en.wikipedia.org/wiki/Sherritt_International
http://www.theglobeandmail.com/report-on-business/rob-magazine/ian-delaney-on-stepping-down-coming-back-and-castro/article2315095/
Quote:
You’re still banned from entering the United States. Do you feel you’ve missed out on anything?
No. Their loss.
@Tim – Ahh… Cuba and the US. Every way which we are taught NOT to act by our parents. The US acts that way towards Cuba.
@Arrow – do you write for the Globe and Mail? I think I saw something you wrote.
I wonder why Saverin gave up his US citizenship. He is Brazilian, so he did not have to acquire Singapore citizenship in order to have a nationality before renouncing his US citizenship He must have had to pay a real pile of mony in the form of an exit tax. The US capital tax rate is 15% but for non-US foreign citizen residents it is 30%, so if and when he sells Facebook stock, being a US corporation, nhe will be taxed on the gain at 30% as a non-resident foreign citizen rather than the the 15% rate of a citizen or green card holder. That is based on current tax rates, which could well be changed radically depending on the November election.
Geeez:
I have written for the Globe and Mail — but not recently. I do post comments on their stories from time to time when my feathers get ruffled — and I use Arrow as my moniker.
@Roger
According to Phil Hodgen he will pay zippo zero in capital gains once(already) has become a non resident alien.
http://hodgen.com/why-the-facebook-dude-expatriated/
“People need to come in and get right with us before we find you,” Doug Shulman, the I.R.S. commissioner, said in January. “We are following more leads, and the risk for people who do not come in continues to increase.”
Let me see if I understand Mr. Shulman. You all please correct me if I am wrong. I assume that he knows that Americans Abroad have an Earned Income Exclusion of around 90,000.00 dollars. So he must be talking of people who earn more than that and even if they do they will have a Tax Credit for the taxes they pay where they reside, I guess he also knows that if they have savings and investments, whatever they earn they will pay taxes to the country where they reside, And the IRS will give them Tax Credit for this. So, up to now no tax liability to the USA.
But let’s then figure what Mr. Shulman is after, An American living in Colombia for the past ten years who just learned about the FBARs. He never heard about it before. In his country of residency there is not one IRS representative, No CPAs who work with Americans Abroad. He learned about this recently when visiting people in the USA.
Well, Mr. Shulman knows that for the past eight years this person in Colombia would not really owe any USA taxes for the reasons above. But now comes the catch: he did not file the FBARs for eight years. Well, Mr. Shulman will receive a correction filing of eight years of FBARs but… it will be up to him to decide if he will accept or not the explanation for not filing. Let’s say that this American has a life savings of US$200.000.
If Mr. Shulman does not feel that the explanation was reasonable he may charge criminal charges and of course will collect money: 10,000 a year for 8 FBARs will be US$80,000.00, plus 27.5% of the highest investment. That is US$55,000.00. Total: US$135,000.00 not of taxes owed but of stiff penalties for not filing the FBARs..
Since the great majority of Americans Living Abroad ( and dual citizens and green carders) still don’t know about FBARs, Mr. Shulman then will make a lot of money. Can you imagin?. Anyone can understand that it is not in the best interest of Mr. Shulman to let Americans Abroad know about FBARs. This is why, of course, he has not made any effort in this direction.
This is also why the IRS Tax Advisor is questioning him without receiving an answer.
Please correct me.
From Accounting Today:
“Congress Probes IRS FATCA Interest Regulations”
http://www.accountingtoday.com/news/Congress-Probes-IRS-FATCA-Interest-Regulations-62627-1.html
@Thatisme
Mate, you have calculated the “in lieu of penalty” wrong. It is NOT 27.5% plus $10k per year for 8 years. It is ONLY 27.5% of highest aggregate only. I say “only” in a relative term. It is onerous enough, in and of itself. 🙂
@Tim and Roger: indeed non-resident aliens don’t pay capital gains tax in the US (unless of course Congress decides to invent a new “Saverin rule”), but they do pay tax on US-source FDAP (“fixed, determinable, annual, or periodical”) income. Saverin won’t get the “qualified dividend” treatment any more on dividends from his US investments, and since he’s a non-resident alien living in a non-treaty country, his rate goes back to the standard 30% that Roger was thinking of. I guess he is not expecting Facebook dividends any time soon 🙂
Of course, he now no longer has to pay US taxes or file ridiculous Form 5471s on his non-US investments.
@FromtheWilderness
http://bit.ly/Jvgpnp
Eric, You are correct. And as a non-US citizen resident abroad if he places his US holdings in a Qualified trust in the Cayman Islands, he will likely escape all US taxes on his earnings and capital gains as well.
The only area where he may remained exposed to US taxation is via the US estate tax on US assets when he dies. But with his income I am sure he will be able to find tax consul that will prevent that from happening as well.
@Just me
I would think that they did a cost-benefit analysis on DATCA.
But then again maybe they didn’t or perhaps they underestimated the push-back from States like Florida, whose Miami banks are full of Latin American cash.
I suspect they may try to implement DATCA selectively. That is, wherever it suits the US.
In any case, DATCA is going to be interesting and could very well become a game changer.
@Fromthewilderness, I think you’re right about DATCA being a game changer but not only because of the banks. I ran the idea past some of my friends and family in the US about it and they were appalled at the idea that banks would be asking them about their other citizenships. “Not the banks business,” was the nicest thing I heard. 🙂
@FromTheWilderness.
I don’t think they did a cost benefit analysis on DATCA the same way that no cost benefit analysis was done of FATCA. Both are just imposed, end of story. Had there been one, Geithner would have offered it up in response to Boustany request back in September instead of just ignoring it. The benefit is simply that they have a reciprocity tool to force recalcitrant FFIs and governments to give the IRS what it wants. That is benefit enough, from their standpoint.
@Just me
You’re probably right. It won’t be the first time for major policy decisions or laws being passed without thinking through the consequences.
@Victoria
Its always interesting when the shoe gets put on the other foot.
I am pretty convinced that there has been no analysis of any substance on the consequences of FATCA and it’s associated regulations. I wonder where the original $8.7Bn figure came from in the first place – how much of it was going to come from unpaid tax and how much from non-reporting penalties regardless of tax liability. In the latter case there is no justification whatsoever to count it as lost tax revenue in the first place.
They gave FATCA, DATCA and GATCA even less analysis than they did Weapons of Mass Destruction before they launched Shock and Awe on Iraq. We know how that turned out.
@P33t
I have not been seen any analysis of where that $8.7 billion has come from. It is not even a “meaningful arbitrary number”. It is strictly in the area of a WAG, and that is good enough for Congress.
@Blaze… There was a book about that. “Fiasco” was the title, and Fiasco it was and so it will be for FATCA. (good read btw)
@Blaze
Great analogy! You read my mind.
@Just Me, Wilderness: Unfortunately, I fear Wednesday’s hearing is going to be much like Colin Powell testifying at UN about “facts and conclusions based on solid intelligence” about WMD. Much too late, Powell admitted he was “misled.”
As historians tell us, “If we don’t learn from history, we are bound to repeat it.” Unfortunately, Americans never seem to learn from their own history. So, now we and our non-existent millions are under attack.
I read the notes from one of the previous FinCen hearings, where they listed the responses as primarily positive. (You might remember where it is (I’ve googled hundreds of pages)). They stated they had some negative responses from overseas, but those responses were dismissed as irrelevant because they were from people who “had chosen to leave the country”.
@ mark –yeah, and they wonder why we claim that we don’t have representation in Congress. All the laws are passed to penalize us and they let us vote. Big deal. We are not voting for our representative but theirs.