US Unlikely To Crack China FATCA Agreement
by Lisa Smith : March 4, 2013 – iExpats.com
No FATCA benefit for China
FATCA has been created to track down the offshore financial assets of US taxpayers and make the institution concerned reveal details so that tax can be collected.
The failure by the institution to register with US tax authorities will see a 30% withholding charge being levied on all financial transactions between it and the USA.
Now China is telling the US that there will be so few US citizens holding Chinese bank accounts that the cost of implementing FATCA outweighs the benefit to the nation’s financial institutions.
The Chinese have also pointed out that even the opportunity of signing an IGA which would allow them to get details of Chinese taxpayers in the US would also serve minimal benefit to the government.
So without China on board, it jeopardizes the entire program. China doing a better job of protecting expat rights than the US? Hilarious.
The IGAs compel nothing for American banks. New laws would have to be passed by Congress and they have even been drafted yet. The whole situation is win for the Americans and lose for everyone else.
unfortunately, the article is just a surmising–China isn’t making a public statement. Hence, there is nothing for any other country to follow.
Still, it’s a pity more countries didn’t just say it isn’t worth the cost. Of course, that’s what the banks here in Switzerland have been doing, but it’s not at government level.
I have been doing some volunteer teaching for immigrants to Canada — English conversation and Canadian citizenship — and many of the students are Chinese. According to some of them, the children of the Chinese elite often go to the West, especially the US, for advanced studies, the more prestigious the university the better. According to my source, perhaps 50 percent of those going to the US take out US citizenship. So FATCA implementation would effectively target family members of the most powerful people in China. This is anecdotal, of course.
It has been fairly well-known as well that Chinese business people doing business in the US have often taken out US citizenship because of the perceived prestige, but are now regretting it and in some cases renouncing. (I read an article on this latter point some time ago.)
I have assumed for some time that China, out of sense of pride, would find it difficult to swallow FATCA. Moreover, with the size of US debt held by China, it could come down to a game of chicken. The more personal aspect above was new to me.
@NorthernShrike, which state would the US have to sell if China wanted its money back? Hawaii?
Today, China is the most effective check on US hegemony and arrogance. Which government values its diaspora? Which government respects national sovereignty? Who has the most effective economic policy? China beats the USA on all three.
@NorthernShrike… I definitely believe a lot of Chinese took NA citizenship but that number seems pretty high, only because China doesn’t allow dual citizenship. A lot of Chinese are buying property and/or investing in the UK and Canada to get a fast track to CA or EU citizenship, specifically because of all the US tax implications (though many are buying property in a beat-down US property market now as well).
Anyway reading the article reminded me of a thought I had when reading Fred’s post on another topic (but didn’t comment on)… the perception in the US is that everyone in the world is falling all over themselves to get a green card and start living the life. I’ve been married to a mainland Chinese national for almost eight years now (though we live in Hong Kong now), and the only reason she would consider moving to the US is to learn more English and because it’s a better environment for the kids. I’ve been gearing her up for a potential world with FATCA and an China/US IGA, and she keeps asking me how exactly the US still sings “land of the free” with a straight face. Wish I had a good answer for her. My hope is that China will stand firm and this whole thing either becomes a) dead or b) much fairer to the American expat who is living honestly.
No surprise there!
I only see a Sino-American IGA “potentially” coming into place if the US bears the cost of implementing and maintaining FATCA compliance systems in China and Chinese passport holders are fully exempt.
I sure as hell doubt the US will ever agree! Just the costs in such a huge country would heavily offset any revenue the IRS “would” collect.
The only thing an IGA does is shift the compliance from Banks to the Government, if China doesn’t sign a IGA, the banks who do not become FATCA compliant will have a withholding against funds sent to them from the United States.
So there will still be FATCA compliant banks in China I’m sure, just that you can also have non compliant banks at the same time which generally an IGA removes as a possibility.
@Stateless Man makes a very important point. The reason that the banks want the IGAs is because then all must participate and will banks all be required by domestic law to send the data to their government.
Without an IGA banks will be able to compete for customers on the basis of whether they are going to be IRS informants – in effect – Whistleblowers.
This will create a market for a new kind of financial institution – The Non-Compliant Bank. Ultimately the success will be based on whether people really care about their privacy and freedom.
I am beginning to think that very few really care. Facebook and other social media sites have prepared people for the FATCA world by making them think that privacy really doesn’t matter.
https://renounceuscitizenship.wordpress.com/2013/01/22/from-facebook-to-fatca/
Viewed another way:
FATCA is really about a clash in values.
Group 1: Those who do not value privacy, human rights and human freedom. These are disciples of Orwell’s 1984 but really don’t understand its full implications. The United States is obviously the number one advocate for eroding human rights.
Group 2: Those who do value privacy, human rights and human freedom. These include those who actually understand 1984 (possibly some European countries).
When Reagan said: Freedom is never more than one generation from extinction:
https://renounceuscitizenship.wordpress.com/2012/12/26/freedom-is-never-more-than-one-generation-away-from-extinction/
he had never met Carl Levin and Barack Obama.
https://renounceuscitizenship.wordpress.com/2011/10/29/obama-explains-the-rationale-for-fatca-lauds-work-of-carl-levin/
Put it another way:
A FATCANatic is somebody who has read 1984.
A non-FATCANatic is somebody who understands 1984.
Another cute thing that’s done here is that albeit bank accounts are opened with a passport for foreigners, they track nothing but the number and name. That’s it. Nothing to do with nationality. The cost to merge all that information would be monumental, and not worth it at all. It also would violate quite a few laws in the process. But, this isn’t just about USCs, it’s about USPs. So that is inclusive of all green card holders, which there is zero information on, and everyone opened their accounts with national IDs. Good luck merging that! They would also by default have to target all dual nationals who entered on a non-US passport despite having one (quite a few, as the US passport gets hit with a higher visa charge). It’s just impossible without massive invasion of privacy on a level which is highly illegal, even in China.
This would be similar to China demanding the account information of all ethnic Chinese accounts in the US, all related accounts, and demanding all identifying information as some sort of a crackdown on dual-nationals and corruption. Adding in the ability to demand arbitrary freezing of accounts. And there would still be virtually zero benefit gained apart from making life hell for everyone involved at every level.
Also, “green cards” are losing their luster here now. They were basically just another show-off item, but noone really knew about the tax implications. It was just seen as a quick and dirty way to add some travel access to the passport. Getting the equivalent for EU or Canada is much higher on the list of “things to get”. It’s going to cause a bit of chaos in the near future as well. There was a cottage industry going of sending the pregnant wife off to the US to lay low and give birth for the US citizenship. Typically peddled by agents who promised easy US green cards and passports for the parents, free schooling, free healthcare, access to all the wonderful college scholarships, etc. etc. None of which really exists. Fueled mainly by a massive disconnect in terms of information. As prices continue to rise in China, benefits of having citizenship here only go up as the subsidies become worth a whole hell of a lot more. Getting your kid into a magnet school basically means a one-time $4000 donation to get on the enrollment list. And everything past that is free till the end of high school. Enrolling a kid with a foreign passport? Most just flat out refuse it on principle unless you’re willing to shell out $8~10k a year for K-12. And that price is not locked in, it goes up every year. Why so much? Because the school system works under the assumption that your kid will stick with the same school, transfers are VERY rare, and they only get their subsidies for students actually enrolled at the time. Foreign passports are seen as unreliable, and a hassle, so they just don’t do it. With a place of birth in the US, the policy of China is one that explicitly denies dual-citizenship. You’ll never get a hukou, period, until you are capable of producing evidence that the foreign citizenship was renounced… and even then, the bribes and access required to make it happen are on a rather extreme level.
If you’re actually rich, chinese passport or not, none of this shit matters. If you already have those types of connections, again, none of that shit matters. You can easily buy your way into the best schools anywhere in the world, snap up PR in any number of countries with far better benefits while maintaining Chinese hukou. And raising the kid in China, surrounded by Chinese, US passport or not, will never produce a fluent English speaker automagically. It’s just a money hole, one which the top can easily afford, but the majority of those who jumped on board have absolutely zero clue about. Have a neighbor who did just this, and sought me out for information when their kid was denied enrollment. They ain’t rich, they’re middle class at best. And this kid is easily costing them over half of their combined take-home just for the basics. Fools rush in. They wanted my help to figure out how to cancel the US citizenship, as the honeymoon was over, and the $50k sunk cost paled in comparison to the expenses they finally realized. It’s impossible to do. Just flat out impossible. This has resulted in them not being able to swap into a larger house, not having a better car, and it’s done nothing but set them back. All those rich kids they were hoping to befriend their little kid are locked away in the international schools, which they cannot afford (and they demand that at least one parent holds a foreign passport anyways). In a word, they are completely fucked and they did it to themselves. At a bare minimum, thousands of others have done this as well without knowing anything about it, apart from being able to show off their anchor baby for a few years, content in their ignorance. I believe they are currently looking into homeschooling, which is allowed for foreign kids, but that will still nuke half of their income. Most expensive status symbol ever to be honest. If they had just been normal about it, they could have taken all that extra cost, saved it, moved into a larger home, rented this one out for about $1000 a month at current going rate, sent the kid to public school, skip out on high school and send the kid off to boarding school abroad and then easily get into a good college, which even at sticker price, would be trivial. Coming back to China, the kid would be considered “overseas returning Chinese”, and open his world up to some pretty insane benefits. And it would have been far far far cheaper.
@fred
Thank you for that eye-opening story.
interesting link : IRS brushes aside the constitution to make way for FATCA
http://taxpol.blogspot.ch/
A view from China with links to other SE Asian commentaries
http://www.china-briefing.com/news/2013/03/07/u-s-foreign-account-tax-compliance-act-in-full-swing.html
@Mike, many thanks for that link from Prof Allison Christians blog;
http://taxpol.blogspot.ch/2013/03/irs-brushes-aside-constitution-to-make.html
Monday, March 4, 2013
‘IRS brushes aside the constitution to make way for FATCA’
….”……..the IRS rep casually dismisses any constraints on the Treasury’s attempt to bind the US with these documents as a matter of international law..”…
“…..the Executive Branch cannot simply bind the US to any agreement it wants to without doing violence to a constitutional process that has been expressly laid out and subject to decades of analysis and debate by the country’s most preeminent legal minds.
This is why the IRS has been very quietly implying that the IGAs interpret existing treaties. ……. ………..the IRS needs it to be true because if it is not true, the only alternative is that the IGAs are sole executive agreements entered into by the executive branch with no congressional oversight whatsoever. That puts them on the most precarious legal ground in terms of foreign policy power in the US”………………..
Really worth reading and re-reading in entirety – excerpts can’t do it justice.
Victoria comments below the article.
From China Briefing…
U.S. Foreign Account Tax Compliance Act in Full Swing
@Just Me. Take anything coming from Baron Christopher Devonshire-Ellis with a grain of salt, he’s a complete scam.
Reuters, part of the Thomson Reuters group which also offers FATCA consulting services, has an upbeat news article on Brazil’s “progress” towards implementing FATCA:
“U.S.-Brazil tax deal advances anti-tax evasion dragnet -lawyers
By Patrick Temple-West and Alonso Soto
WASHINGTON/BRASILIA, March 21 | Thu Mar 21, 2013 8:13pm EDT
(Reuters) – The United States and Brazil are moving toward closer cooperation on fighting tax evasion, with Brazil recently ratifying a formal tax information exchange agreement between the two countries, tax professionals said on Thursday.
After languishing in the Brazilian Senate for six years, the agreement, which provides for limited sharing of tax information, was approved last week, thus opening the door to a pact on the more comprehensive U.S. Foreign Account Tax Compliance Act, or FATCA.
FATCA, the anti-tax dodging crackdown law approved in 2010, is being rolled out around the world by the U.S. Treasury Department via a series of inter-governmental agreements.
The ratified tax information exchange agreement, or TIEA, “is very important for FATCA,” said Bruce Zagaris, a tax lawyer with law firm Berliner, Corcoran & Rowe LLP.
FATCA, which takes effect January 2014, will require foreign financial institutions to disclose to the United States information about Americans’ accounts worth more than $50,000.
The law puts the reporting burden on banks and investment funds, which could effectively be frozen out of U.S. markets if they fail to cooperate with the U.S. Internal Revenue Service.
The inter-governmental agreements, or IGAs, allow home-country regulators of foreign financial institutions to serve as go-betweens with the IRS. Institutions whose home countries lack an IGA will be left to deal directly with the U.S. agency.
The Treasury has completed IGAs with five countries: the UK, Denmark, Mexico, Ireland and Switzerland. Negotiations are under way with dozens more countries, including Brazil.
The TIEA “is a big development in the context of FATCA,” said Michael Mundaca, a former U.S. Treasury official who has negotiated tax matters with Brazil. He is now a senior executive at accounting giant Ernst & Young.
“With every country that comes onboard, the pressure increases on those that have not yet made a decision to fully cooperate.”
U.S.-BRAZIL TAX TREATY PROSPECTS IMPROVE
Brazil and the United States have no tax treaty, which helps global companies avoid double taxation. The United States has tax treaties with more than 60 countries, ranging from China and the UK to Bangladesh and Kyrgyzstan.
Major companies such as Minneapolis-based Cargill and Brazilian planemaker Embraer have said the U.S.-Brazil TIEA is key to the two countries one day inking a tax treaty to end double taxation.
“This information exchange is a first step … We have never done that,” U.S. Deputy Commerce Secretary Rebecca Blank told reporters during a trip to Brasilia earlier this week.
She said it could take a year to 18 months before the countries start exchanging tax information.
FATCA compelled Brazilian banks to lobby for the information-sharing deal and to get Brazilian authorities moving toward more U.S. cooperation. “FATCA has helped to engage the banking community” in Brazil, Zagaris said.
Brazilian tax collectors pursuing criminal tax dodgers have already submitted requests for information to the United States, he said. “There’s too much at stake in terms of their own desire to enhance tax enforcement,” Zagaris said.”
http://www.reuters.com/article/2013/03/22/usa-tax-brazil-fatca-idUSL1N0CCDN120130322
Another point that is unclear is that they kept talking about protecting the rights of EU citizens.
How about US citizens living in the EU? Are they protected by the same laws?
Sorry, Pacifica, could you please move my last post in the last thread that Tim posted on the EU FATCA conference and delete this request? Thanks.
@Chris,
Sorry, I can’t get it to work. I’ll think Calgary or Petros can, so I’ll send them a message. Or, if you re-type your 7.50 comment as a new comment on Tim’s EU thread, I could delete these here when I see it there.
That’s the fix I would suggest too, Chris. Thanks, Pacifica. Perhaps Petros could move it, but I don’t think I have that capability.