Yet More Trouble for FATCA: China and Germany
James George Jatras for RepealFATCA.com
February 22, 2013
FATCA: the “Fear And Total Confusion Act”
As noted earlier, FATCA (the Foreign Account Tax Compliance Act) is unenforceable and unviable unless virtually all countries in the world – or at least all the major financial centers – sign on. That is looking less and less likely, spelling big trouble for a law that one of America’s top tax lawyers has correctly described as “sheer idiocy.”
No China, no FATCA
No scheme of global financial reporting can possibly succeed without China. As noted by Nigel Green, CEO of deVere Group regarding China and Hong Kong:
FATCA could, ultimately, unravel if China rejects the IGA because FATCA’s primary strength would come from all governments around the world forcing their financial institutions to become compliant with it.
Should the country which looks set to be the world’s dominant economic super power in a matter of decades rebuff FATCA, the project would be compromised and could, in the end, fail as such a stance would, many experts agree, prompt other countries to do the same.
[ . . . ]
It’s currently unclear but there are signs that Hong Kong could indeed act independently from Beijing’s stance as there has been no reference to Hong Kong, a special administrative region (SAR), in any of the published material we’ve seen on the matter.
Additionally, James Jatras, of the Repeal FATCA campaign, informs us that, interestingly, like the People’s Republic of China, Hong Kong is not on the list of 50 countries the Treasury claims to be negotiating with. [“Could China Kill FATCA?,” Feb. 22, 2013]
Germany “in no hurry”?
While China’s compliance with FATCA always has been problematic, one country the U.S. has counted as a “given” from the outset is Germany. Among the first five countries to indicate a willingness to sign an IGA, Berlin was supposed to have been wrapped up by the end of 2012. While efforts to finalize a U.S.-Germany IGA will press forward hard in 2013, they could be tripped up by Berlin’s insistence that information exchange be a two-way street (“Germany in no hurry to sign its Fatca IGA, expert says,” Feb. 22, 2013).
The problem of reciprocity has raised itself with the report that the U.S. Treasury Department plans to ask Congress – much earlier than expected – for new legislative authority to move closer to “full reciprocity” than currently exists in the Model 1 IGA. It’s speculated that this is because one or more countries has told Washington they will not sign until they get a more balanced exchange of information. Legislative approval of additional authority for information exchange is unlikely in light of Congressional and industry objections to even the limited bank interest reporting already provided for under the “Model 1” version of the IGA.
In short, not just Germany but any government that insists on mutual respect and cooperation from the U.S. side is unlikely to get it.
Time for an alternative to FATCA
As Congress begins to wake up to the inadvertent mess this misguided and insufficiently thought-out law stands to cause, FATCA’s prospects are dimming every day. Incredibly, even as the unraveling of FATCA begins to accelerate, some countries remain convinced (in large part due to a poor understanding of the U.S. political system) that capitulation to FATCA by signing an IGA in one form or another is the only recourse – but “there must be no diminution of the countries’ sovereign rights.” This, of course, is a contradiction in terms, since FATCA inherently is a flat-out surrender of sovereignty to Washington’sdiktat. Moreover, the IGAs don’t even provide any significant degree of protection for firms facing crushing compliance costs.
Instead of cooperating with the Treasury Department’s efforts to rope them into the FATCA corral, financial firms and foreign governments need to move with the political winds in Washington – and get behind the campaign to repeal “the worst law most Americans have never heard of.”
As efforts to repeal FATCA begin to pick up steam, it’s time to start thinking about alternatives to what is aptly called by some the “Fear And Total Confusion Act.”
James George Jatras
Visit www.RepealFATCA.com for more information on “the worst law most Americans have never heard of”
Why would Germany or China have a particular interest to ensure (via FATCA) that their financial institutions have unhindered access to invest in US markets?
Would it not be more in the interests of Germany and China to have their own financial institutions invest more in their respective home markets?
If I were Germany, I would gladly sign FATCA. It kills US-expats (goodwill ambassador, sales people and feet on the ground) to compete against German exports in respective nations. If the US is willing to offer that in silver-platter, why would Germany try to discourage the USA. The US is making hard for US businesses to compete, even if it has monopoly in certain hi-tech areas. Many companies are forced to depend on foreigners or even competition to sell goods in foreign countries. In most cases service, parts and support is even bigger and profitable than the initial sale. The local partners enter this business, for example, by sourcing parts from in-house or from other sources (where they can get higher margins). The US companies are forced to train future local competition in order to support their products, if they want to export their products to large nations such as China or India.
Good points, FromTheWilderness and Bharat. In my particular case, Germany has definitely profited from FATCA. After renouncing, I liquidated all US assets (not all that much in the great scheme of things, but anyhow) which I still had there and transferred them to Germany. And I will certainly not be investing in US financial products and services in the future. Last but not least, after this ordeal, I would hardly refer to myself as a “goodwill ambassador” for the USA…
Sorry guys, but this press notice from the the Bundesfinanzministerium (http://www.bundesfinanzministerium.de/Content/DE/Pressemitteilungen/Finanzpolitik/2013/02/2013-02-22-PM16.html?source=stdNewsletter) says that the US and Germany have agreed on wording of a contract that requires:
1-Germany to collect information about accounts of “US customers” and give it to the IRS
2-the US to give Germany information about interest and dividend income that it gets from financial institutes
3-the US to exempt all German financial institutes from reporting requirements
Both contractees are to “fulfill the requirements for signing” soon.
So, it looks like Germany might sign deal that is reciprocal in name only soon. Germany has to collect the information about accounts and provide it, but the US only has to provide the information the banks happen to give it.
I’m complaining to my government, telling them not to sign non-reciprocal contracts.
that fits the timing,
John Kerry noted to an audience of German students that “In America, you have a right to be stupid, if you want to be.”
So we know why he and Billary have so much traveling to do.
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