The Miami Herald had this story in the Sunday paper. (Hat tip to Roger Conklin)
Under new IRS disclosure regulations, details about U.S. bank accounts held by foreign nonresident depositors could be shared with their home governments. As a result, bankers say hundreds of millions of dollars have left Florida since April.
What is interesting to me about this story is this: While they talk about the global crackdown on tax evasion, and reference the history of UBS, and the IRS voluntary disclosure program, there is no mention of FATCA anywhere. Not sure if that is intentional, or if the journalist doesn’t understand the connection between FATCA, and this domestic effort which I call DATCA (my shorthand).
As Christophe pointed out here, Congress recently voted to delay this IRS regulation. So, the battle is becoming more public, and wonder how long this will remain non political in this silly season.
For the likes of Debbie Wasserman Schultz , Chair of the Democratic National Committees, she is now in a tough place. She voted for FATCA, and then voted to delay DATCA, the IRS reciprocity fall out of her first vote. Ah, sweet irony! 🙂
I continue to record the history of this developing story here
Great news. And don’t forget the foreign money that will leave because of FATCA’s 30% withholding provision. Or perhaps the fleeing money is taking that into consideration too.
This will make the sub-prime mortgage crisis look like walk in the park. The US needs leaders. The people have been electing demagogues for far too long.
I predicted that this would happen, I just didn’t think it would be so soon. I agree, Petros, this will be much bigger than the mortgage crisis, and everyone will wonder what caused it. Is there any way to stop FATCA?
*Sound the alarm! Shout it from the Housetops! The cows are already beginning to come home. And tie what is happening to FATCA!
You reap what you sow. Congress has sown to the whirlwind and believe me this is concrete evidence that there will be massive consequences, unintended and anticipated, of this ill-conceived FATCA legislation.
I just posted this comment doing everything I could to keep it from going into moderation! 🙂
Interesting story, and pretty well developed except that it was missing one important piece of information. FATCA
The Foreign Account Tax Compliance Act (FATCA) was passed by Congress, as an amendment in 2010 Hire Act. This was a particularly nasty piece of legislation with extra territorial over reach that had good intentions, but in application with 388 pages of regulations has many negative unintended consequences and fall out.
It is attempting to make all the Foreign Financial Institutions (FFIs) in the World become IRS Revenue agents and turn in the account data on all “U.S. Persons” living anywhere on our little blue globe. This is about more than just homeland American tax evasion!
There have been serious negative consequences to millions of Expats abroad becoming pariahs and denied ordinary ‘on shore” banking services in the countries where they live by FFIs who find these regulations too onerous, complex and expensive.
The BIG fallout domestically, is right there in Florida. The IRS has unilaterally created these U.S. Banking regulations as a reciprocity tool to force other countries to be compliant with FATCA.
Congress did not, by statute, create this domestic requirement, rather the IRS just decided it needed it to implement FATCA. It proceeded unilaterally using its regulatory authority, or so it thinks. My shorthand for the effort is to replace the F with a D for domestic, or DATCA.
The FATCA inter-government agreements (IGAs) are an attempt to simplify the FATCA rules a bit. They want to engage in automatic data exchange between countries rather than have every FFI in a particular country report directly to the IRS which is prohibited by many countries privacy, constitutional and human rights laws.
On the 26th of this month the IRS announced the final version of a 5 EU nation pact with Germany, France, UK, Spain and Italy. However, governments like Germany have said they will only go along if they get reciprocity from the DATCA regulations that the Miami Bankers are rightfully concerned about. Capital flight is a natural follow on to what the IRS is doing.
Congress is beginning to wake up to the damage of their FATCA Statutes as they watch capital flight begin in America because of IRS DATCA efforts during this shaky financial recovery. Add to this the other complex regulatory actions like Dodd-Frank, and you have a recipe for developing serious systemic impacts.
On the 26th, Congress just voted to delay these IRS DATCA efforts. Google the headline: “House votes to postpone IRS rule on foreign deposits in US banks”. This puts in jeopardy, the FATCA IGAs mentioned above. This is good, as it might slow down this FATCA headlong rush towards an uncertain Global future. We need some level headed reconsideration of what is happening. Most Americans have no idea this is occurring.
With the help of stories like this, the battle is becoming more public, and wonder how long this will remain non political in this silly season.
For the likes of Florida’s Debbie Wasserman Schultz, Chair of the Democratic National Committees, she is now in a tough place. She voted for FATCA, and then voted to delay these regulations (DATCA) which were the IRS reciprocity fall out of her first vote. Ah, sweet irony!
Bottomline, if you want to stop DATCA, then Congress needs to repeal or seriously amend FATCA.
Great comment @JustMe, and it is so good to see that the sauce for the goose isn’t going down so well for the gander. The US is a great big fat ball of political hypocrisy. We know that FATCA and FBARs aren’t about money laundering, etc. – otherwise, the US would have done something before now about it’s own domestic tax havens and banking secrecy industry. Meanwhile, those with legit everyday post-tax, CRA registered accounts where we live and work and are born – outside the US, are still waiting for that helpful simplified low-risk compliance regime the IRS promised many months ago.
Another great summation for the MSM. For me the REAL irony with Debbie Wasserman Schultz is the fact that she was the keynote speaker at a recent fundraiser at the Westin Diplomat hotel and conference center in Hollywood, Florida where I stayed with my wife and daughter. We were there a couple of weeks ago for a nationals dance competition that my daughter was participating in just one floor above the fundraiser. To add even more fun to the mix, the Miss Florida beauty pageant was also being held at the same conference center at the same time. To think I was so close to one of the principals of this drama and never had the chance to even smirk at her from afar.
Incidentally, I had no problem crossing the border at Ivy Lea, 1000 Islands with just my Canadian passport showing U.S. birthplace. The difference this time is that I told the border guard right away that I was a naturalized Canadian citizen born in the U.S. If his response had required it then I was prepared to explain that I was working on obtaining a CLN etc. Fortunately that escalation wasn’t necessary.
*Here is where I am sympathetic to FATCA proponents. If you don’t have some type of “information sharing” for tax purposes the Income Tax whether in Canada, the US, France or any place else is dead in twenty years(just like the old Manufacturers Sales Tax died). In Canada that means the GST/HST at 20+ percent. In the US I don’t know how the hell you replace Income tax revenue. I would argue even today the long term future of the income tax in Canada is in question. Remember one of the reasons why so many institutions want to comply with FATCA is they want to preserve their access under the QI program to US securities markets(which are by far the biggest) for their non US tax cheat customers. Under QI for example if a Canadian opens a securities account in Mauritaus lets say and buys a bunch Google stock that is not reported to the IRS. If CRA wants to find out there only option is approach Mauritaus(Under QI the IRS would have no information reported to them under that scenario). If that Canadian customer only uses their offshore debit/credit for example when traveling to the US CRA has even less chance of ever finding them and to the US they just look the millions of non resident alien tourists that visit every year.
@ Tim, here is where the libertarian perspective is helpful: I have no sympathy for FATCA. I have enough trouble keeping my nose clean with Canadian government which I can manage if the US government butts out. But I can have no more sympathy for extra-territorial taxation, ever again. FATCA combined with extra-territorial taxation is financial weapon of mass destruction. It has no place in the modern world when combined with extra-territorial taxation.
Governments don’t need to always have their hands on every single aspect of our financial lives. They sometimes just need to become smaller. When they get to big, and they suck up all the oxygen, then capital flees to where it is desired, instead of punished. FATCA is an attempt after the fact to get money to stay in the United States. If they made capital welcome there would be no need for FATCA.
*@Tim, This is where those who have proposed the FairTax in the US begin to make a lot of sense. The FairTax would totally eliminate the IRS and replace the income tax with Federal consumption tax, something akin to a VAT or sales tax, that would be an add-on to the sale price of all NEW merchandise. The income tax has been so complicated to administer that hundreds of billions of dollars are expended in trying to collect and administer the 70,000 page US Tax Code.
It would be a territorial tax only on retail purchases in the US. There are plenty of arguments that it would not be fair, but if there is anything fair about the current US income tax that fairness is pretty hard to identify. I would not apply to export sales, but it would apply to retail sales of every product, either domestic or imported. In the last election Gov. Mike Huckabee was a proponent of the FairTax
But there are so many special interests in the current tax system which lobbyests and special interests have been successful in building into the tax code.
Most of the “unfairness” argument is built around the “tax the persons with high income more” concept as being more fair. But the high income persons are also the highest in per-capita consumption as well, so they would still generate the highest percentage of tax revenue. For those who might be interested, go to http://www.fairtax.org for more details. I think that is it. Maybe it is .org.
With the FairTax there is zero advantage to hiding funds in some foreign tax haven.
There is, after all, nothing sacred about an income tax. Eight nations of the world have no income tax and another half dozen only collect income tax from foreign citizens who reside in those countries. Usually in those cases the income tax is minimal.
For the US citizens who live in those middle-eastern low or no income tax countries, they end up paying a high tax to the IRS, because none of the consumption taxes are creditable against their US tax obligation because they are not income taxes. US citizens are totally hopeless in competing for jobs in those countries. With the FairTax the need for this cross-border information is totally eliminated.
@Roger Conklin, According to my research, there are 14 independent countries and 10 dependent territories that don’t have an income tax: Bahamas, Bahrain, Brunei, Kuwait, Maldives, Monaco, Nauru, Oman, Qatar, Saint Kitts and Nevis, Somalia, United Arab Emirates, Vanuatu, Vatican City; Anguilla (UK), Bermuda (UK), British Virgin Islands (UK), Cayman Islands (UK), Norfolk Island (Australia), Pitcairn Islands (UK), Saint Barthelemy (France), Turks and Caicos Islands (UK), Wallis and Futuna (France), Western Sahara (occupied by Morocco). I also suspect that the unrecognized country of Azawad (part of Mali), which declared independence earlier this year, doesn’t have an income tax.
In addition, Andorra only taxes the income of nonresidents, North Korea only taxes the income of foreigners, and Saudi Arabia only taxes the income of foreigners from outside the Gulf Cooperation Council, while citizens from there pay mandatory zakat (charity) instead. In these cases, the income tax rate is 10% (Andorra), 4-20% (North Korea), 20% (Saudi Arabia). I wouldn’t say it’s minimal.
Being a tax haven has more to do with bank secrecy than not having an income tax. There are countries with no income tax that are not tax havens, and vice versa.
Consider what this will mean for, for example, the Commerce Bank of Wyoming, one location only in Rock Springs, Wyoming.
They will have to report on accounts held by citizens of Germany, France, UK, Italy, Spain, Japan, and Switzerland. They will have to be cognizant of how each of these countries defines and identifies their “citizens”.
Spain (according to Wikipedia): Those individuals of 18 years of age or more whose residence is not Spain and who acquire voluntarily another nationality, or who use exclusively another nationality, which was conferred to them prior to their age of emancipation lose Spanish nationality. In this case, loss of nationality occurs three years after the acquisition of the foreign nationality or emancipation only if they individual does not declare their will to retain Spanish nationality
Italy (according to Wikipedia): According to Italian law, multiple citizenship is explicitly permitted under certain conditions if acquired on or after 15 August 1992. (Prior to that date, Italian citizens with jus soli citizenship elsewhere could keep their dual citizenship perpetually, but Italian citizenship was generally lost if a new citizenship was acquired, and the possibility of its loss through a new citizenship acquisition was subject to a few exceptions.) Those who acquired another citizenship after that date but before 23 January 2001 had three months to inform their local records office or the Italian consulate in their country of residence. Failure to do so carried a fine. Those who acquired another citizenship on or after 23 January 2001 could send an auto-declaration of acquisition of a foreign citizenship by post to the Italian consulate in their country of residence. On or after 31 March 2001, notification of any kind is no longer necessary.
Germany (according to Wikipedia):
German citizenship is automatically lost when a German citizen voluntarily acquires the citizenship of another country. To this there are two exceptions:
For Germans, there are further exceptions.
What can I say?
….By the way, as of March 2011 there were according to the FDIC 6,453 banks in the US. All of them will have to sort out these various cases…
…O yes…This is just the beginning. The US wants reciprocal arrangements of this kind with the entire world, not with just some seven countries.
Let the fun begin
@NorthernShrike, The banks won’t have to identify citizens, but residents of these countries. They can easily obtain this information from the client’s address. Only the US and Eritrea tax people based on citizenship.
I see Robert Wood @Forbes has another story up called.
U.S. Treasury Gives Fat Dose Of FATCA Compliance Details
I went ahead and posted a comment about the DATCA / FATCA relationship. Might as well keep hammering away on the same theme when the opportunity arises. 🙂
@Just Me, Outstanding comment. I threw a response today up on the Flophouse which is a bit less measured than my usual style (imperialism and hypocrisy are two words I use sparingly but they seemed to fit the situation so nicely that I simply could not resist).
Right you are. What was I thinking?!
“As an amendment to the Red Tape Reduction and Small Business Job Creation Act,
the United States House of Representatives has approved a cancellation of the
up-coming Internal Revenue Service (IRS) rule requiring US banks to report interest
paid on deposits to non-residents.
In April this year, the Treasury Department issued final regulations to extend
the current rule requiring the reporting of interest paid on deposits with respect
to Canadian account holders, to all foreign citizens from January 1, 2013.“……………
Legislators didn’t consider the possibility that people would withdraw their money or renounce citizenship in reaction, like the world will remain static while they go about trying to pillage it? Bad legislation begets more bad legislation and now’s the blowback to it.
Read more here: http://www.miamiherald.com/2012/07/09/2920363_p2/miamis-international-banking-clients.html#storylink=cpy
@NorthernShrike, banks in the US already have the citizenship information of their customers. I recall having to enter it when I opened accounts at both my bank and broker.
It becomes tricky with dual citizens though. But it is likely that they provided their original citizenship, and never changed it. So it is just a matter of the banks to update their IT system to be able to provide that information.
*Christophe, I suspect that foreign banks generally have little or no interest in the citizenship of foreign citizen US bank account holders, since no other civilized country taxes on the basis of citizenship. What they are interested in is information on the bank accounts of residents of their countries, without respect to their citizenship.
Brazil, for example, would presumably be interested in the US account informaton on not only Brazilian citizens living in Brazil, but also information on Portuguese, Argentine, Lebanese, German, etc. citizens who reside in Brazil. Twenty percent of the residents of Rio de Janeirio reportedly are foreign citizens. Half of them are Portuguese citizens who have immigrated to Brazil and the other half are citizens of the other countries of the world.
It would seeem to me to be relatively easy to beat this reporting system if the foreign citizen with a US accoujnt arranges to have as his address-of-rcord with the US bank as an address in a different foreign country from where he actually lives. It is, I believe, a common priactice for such foreign no-resident citizens to arrange with these banks that they hold all statements for pickup and never send them through the mail. That way they do not end up in the hands of government authorities in the countries where they reside.
I recall that back when there were strict exchange controls in Jamaica, one of our customers there had his US checking account statements sent to our office in Miami. He had a son studying in the US and at that time Jamaican law did not permit residents of Jamaica to have any bank accounts or funds outside of Jamaica. His instructions with us were simply hold these statements but NEVER to hand carry them to him in Jamaica by one of our personnel traveling there, lest it be discovered by Jamaican customs in checking the baggage of someone carrying them to him.
The penalty for having a bank account outside of Jamaica was a severe fine plus several years in prison. I don’t know, but this could well be the case with persons residing in Venezuela today. I do know that the Venezuelan Central Bank does does not make dollars available for persons living there who are required by US tqax laws to pay their US tax on Venezuelan income in US dollars. They have to buy dollars on the black tmarket and, in doing so, risk losing everything they own as well as prison.
Potentially dumb and embarrassing question: Is it correct to assume that if DATCA comes to be, that the CRA can withhold 30% of transactions US bound if there is some doubt about the US’s bank’s due diligence in data collection of Canadian citizens, even though Canada has territorial based taxation?
*Not correct. No basis in Canadian law.
I don’t know if I already mentioned it, but my bank in France recently asked me for a pay stub. I found it odd, because there has been activity in the account for years, and I never transfered any money there. I thought they are requesting this information because of money laundering laws, to make sure that any deposits made matches in their account matches people’s revenues.
But that means that the banks now have the information whether their client are US persons in the case of visa/green card holders if they start asking for pay stubs.
*@Northernshrike, there is one more interesting situation where German citizens may hold dual citizenship in another country. This is if they are born with both German and an additional nationality. They are not required to renounce their “other” citizenship in order to retain their German citizenship.
Born abroad to a German citizen parent often, depending on the citizenship laws of the other country, often results in the person being born a dual citizen. I have known Brazilians, Chileans, Paraguayans, Peruvians and Bolivians born to a German parent in those countries who proudly use their German passports when they visit the US. That way the enter the US under the Visa-waver program. Otherwise they would have to obtain US visas in their “other” passports in order to visit the US. That requires a face-to-face personal interview at a US consulate plus the outlay of cash to pay for the visa. And it is a real pain if you have live in the backlands of Brazil and have to travel 700 miles to the nearest US consulate. And then you have to return to pick up your passport when the visa is approved.
This thread reminded me of something I read when I was doing research on Mexico’s diaspora.
The Mexican government has been asking the U.S. for YEARS for information about the banking activities of its citizens in the U.S. They want an automatic information-sharing agreement. U.S. has always turned them down. Imagine the impact of such an agreement since the U.S. has millions of Mexican citizens (dual or not) living up north. But if FATCA/DATCA go through it’s hard to see what justification the U.S. authorities could come up with to keep them out of such a deal. Here’s a 2009 article that sums it up:
And here is one that is more recent (2012)
You make a good point, and I have some good Mexican friends who I have warned about this coming DATCA and what it would mean for them. 🙂