I have been waiting for someone else to pull this important FATCA development out of the comments made earlier in the day and make a blog posting of it. I guess it might as well be me.
Accounting Today’s Michael Cohn has reported on this quoted knee slapper for why FATCA is being delayed:
Given the groundswell of international interest in FATCA, we are providing an additional six months to complete agreements with countries and jurisdictions across the globe, before withholding begins,” said Treasury Deputy Assistant Secretary for International Tax Affairs Robert B. Stack in a statement. “The high volume of international participation in this effort represents a quintessential race to the top. Every additional country we bring on board means we are one step closer to winning the fight against offshore tax evasion.
Note who this Robert B Stack is….. Frequent and regular readers of IBS should know who he is.
He was the one that was trotted out for public testimony at recent EU Parliament Public hearings on FATCA. If you did not hear his comments or read them, you should at least listen to what he has to say about the Administration’s efforts to provide reciprocity for those they are coercing into signing IGAs. Here is the last part of his answer to questions toward the end of the hearing.
And finally on reciprocity, we would simply point out that under our IGAs that are reciprocal, the IRS agrees to exchange information on interest, dividends and other income that is already collect, which is substantial and in some cases more extensive than what has to be, uh, reported under FATCA.
The US recognizes the importance of reaching equivalent levels of exchange, uh, under all our law, that we are getting from other jurisdictions. And the administration has included in its budget proposal a provision that would permit U.S. Financial Institutions to make such equivalent exchanges.
Under the U.S. political system, uh, different from some Parliamentary systems, we need to work that through Congress but we are um, we are committed to doing that. Once we’ve done that, to go to the question of beneficial ownership in Delaware, once we have equivalent levels of exchange, we would expect our own financial institutions would be required to look through entities and report on individuals just as non U.S. institutions are required to do under our IGA.
Notice that he doesn’t mention anything about Congress recognizing the need for equivalent levels of FATCA exchange, or that this was the intention of Congress when they passed FATCA. But nevermind, Treasury and the Administration plan, by ‘hook or by crook’ , to impose a DATCA on all U.S. Financial Institutions (USFIs), on that he is quite clear! Time will tell if he gets his wish, but Representative Posey thinks not and is calling for a moratorium on FATCA enforcement and FATCA IGAs as we should know from the July 4th message of cheer that was posted by @Calagary411
As for the delay, frankly I think that the June 23rd letter to Treasury from SIFMA and American Bankers calling for FATCA to delayed had more to do with this than anything else.
Number 1 on the list was…
1. Further relief is necessary regarding the January 1, 2014 effective date in order to avoid over-withholding due to delays in the promulgation of essential guidance.
and this..
7. Foreign branches of U.S. banks should not be subject to two parallel regimes. (§1.1471-2(a)(2)(v)) (IE FATCA rules and FATCA IGA rules)
You can read all of their other reasons for delaying here
Bottom line: Coming on the heels of ObamaCare regulation delays, the IRS is overwhelmed with a regulatory mess of their own making, and this fiasco is not ready for primetime yet.
Moral of the story: it’s really, really difficult to get an international tax regime going on a unilateral basis. There is a story in this about the difference in making a unilateral rule first, and then repeatedly changing it to fix all the problems that inevitably arise, versus sitting around in international networks trying to make sure the rule will work first, before trying to implement it internationally. Empirical project for international law buffs!
Finally, I would be remiss if I didn’t draw your attention to one other part of the Accounting Today story. This shows to me that Michael Cohn is trying to be more than a Treasury scribe and regurgitate their press releases verbatim. I have been critical of him in the past for that, and I do think he is being more careful now to give balance to his reporting. It never hurts when the contra view gets the last word in an article. 🙂
This is not surprising,” Jim Jatra, who runs the anti-FATCA Web site RepealFATCA.com, wrote to Accounting Today. “Treasury’s timetable for getting IGAs signed is far behind schedule. Treasury’s explanation for the delay—‘the groundswell of international interest in FATCA’ —‘is absurd on its face. If there was such a ‘groundswell,’ why would they need another six months to try to push everybody into IGAs? This is just a poor excuse for the fact that there isn’t a groundswell, that on the IGA front they’re behind where they expected to be at the end of 2012. ‘Every additional country we bring on board’—or fail to have brought on board yet—means they have to contemplate trying to enforce FATCA directly, of which Treasury is even more terrified of than the FFIs are. Congressman Bill Posey’s July 1 letter to Secretary Lew knocking the legs out from under promises of ‘reciprocal’ information from the US removed what little credibility this policy had. The Department should heed Mr. Posey’s advice to suspend FATCA’s enforcement and negotiation of further IGAs until this misguided law can be overhauled, or better yet, repealed.
Ah thank you, Marvin.
How very interesting it all is. And the spiel Stark is putting on it is, well, mighty “truthy”.
The reality is that no one is ready: not the banks or the IRS either. Where is that much touted Portal to Mordor they were supposed to make available to the FFI’s this summer? 9 IGA’s isn’t much (that doesn’t even cover just the OECD countries much less the rest of the world).
The 30% withholding for non-compliance is a dark dark place where no one (not even the US) really wants to go. Makes me wonder what would happen if a few big countries called the bluff. I suspect the US would back off.
Quote from NY Times article on six-month FATCA delay:
“James Hines, a corporate taxation professor at the University of Michigan, said some foreign governments were refusing to cooperate with the new rules. “It puts the Treasury in a tough position,” he said. “It’s not clear how many delays they can have before Fatca starts to get undermined.””
Note to Prof. Hines: you were being diplomatic. FATCA is a trainwreck.
http://dealbook.nytimes.com/2013/07/12/foreign-banks-win-new-delay-in-tax-evasion-rule/
That Portal of Mordor will open on August 19th, or so they say, and then we all wait breathlessly to see how many of the hundreds of thousands of FFIs, including the family office, have registered by 4/25/2014 which gets them onto the compliance honor lists that will be published on 6/2/2014 🙂
I would love to see someone call the U.S. bluff, but sadly, I fear they are all spineless.
@Innocente
Thanks for that link. I have been hiking all day, so a bit behind in the reading. Appreciate the new link… Delay is our friend… as it allows the time for the under mining!
@Innocente, Thanks for the link. I went over and left a comment.
@Just Me, Completely agree. Gives more time for the domestic political opposition to a reciprocal FATCA to get going. This may be the FATCA killer we’ve been waiting for.
Come on, Canada. Stand up for yourself and your US Person “supposed” citizens, including the “Accidentals,” and stand up for your residents who have come to Canada from the US. In doing so, you’ll be standing up for the rest of the world’s countries. Let’s see what you’re made of.
You can do it!
For those who might be curious, here is a little bio on Robert B Stack. Thanks for this from https://twitter.com/Kyla4u
Does anyone know whether the 6 month delay will affect the obligation of FFIs under the IGAs to report the end of year balance of US Person accounts for 2013 (or closing balance if the account was closed in 2013) – in other words is the delay just a delay to give FFIs more time to report or does it push back the reporting year obligation as well? A 6 month delay would imply it is only a delay for the banks/FFIs to start to report, not affecting what historic data they are required to report.
@Calgary411,
Wouldn’t that just be awesome!
@Just Me
Nicely put together post. This is more evidence that FATCA is not just in trouble, but in very serious trouble. The rest of the world should simply ignore it. Not even the Obama administration is stupid enough to try to enforce the 30% withholding. Of course, individuals are still stuck with the 8938 and will continue to bear a heavy price.
The story of FATCA is not really a story of international tax, tax evasion or even information exchange.
FATCA is really a story of how corrupt, arrogant and dysfunctional the U.S. government has become.
1. At the beginning FATCA was slipped into the Hire Act (an unrelated piece of legislation). Few Congressmen even know what they voted on. (Democracy in America)
2. Under no conceivable interpretation of the actual text of the statute can one find an authorization for Treasury to enter into IGAs. The administration is doing something that it simply does not have the authority to do. (No reason to read the law anyway.)
3. Treasury is intentionally deceiving foreign governments when it promises reciprocity. They don’t have the authority to deliver on this. (Concentrate on what we say and not what we do or can do.)
4. Even if they did have the authority what true reciprocity would mean is that any country can require the US to provide information on any person it wants. Why? Because the U.S. retains the authority to define U.S. person any way that it wants. (Just wait until China defines ciizenship in terms of ethnic origin going back 1000 years.)
5. Representative Posey and Senator Paul have made it clear that Congress objects to what Treasury is doing. (The lawmakers? What do they have to do with this. We make up the rules as we go along.)
In summary: the Executive branch of the U.S. government is doing it’s own thing – something it doesn’t have the authority to do. This is the real story.
Now, here’s another example I read in the paper today about the administration just doing it’s own thing. People who don’t understand FATCA might understand this a bit better.
http://www.theglobeandmail.com/commentary/us-and-china-smile-for-cameras-prepare-for-war/article13196146/
Globe and Mail correspondent Doug Saunders wrote a piece claiming that the administration is preparing for war with China. The article includes:
“So why are the two countries’ militaries preparing to do battle with each other?
Both the Pentagon and the People’s Liberation Army are arming for an all-out war and pursuing enormously expensive master strategies that assume that such a war will occur.
In the case of the United States, this appears to be taking place without any authorization or approval from the White House or Congress. The Pentagon is now basing its global strategy on a detailed plan known as the AirSea Battle concept, in which the U.S. Army and Air Force defend the presence of 320,000 U.S. troops in the area by readying themselves for a full-scale land and air assault on China in the event of a threat in the South China Sea or its surroundings.
In a detailed analysis paper in this summer’s issue of the Yale Journal of International Affairs, the famed sociologist and military-policy expert Amitai Etzioni asks, “Who authorized preparations for war with China?” His answer is stark: Mr. Obama has spoken of a “pivot to Asia,” but there has been no political intent or desire to have such an active military confrontation with China – in fact, the politics and diplomacy have been moving in the opposite direction.
“The United States is preparing for a war with China, a momentous decision that so far has failed to receive a thorough review from elected officials, namely the White House and Congress,” Prof. Etzioni writes. “In the public sphere there was no debate – led by either think tanks or public intellectuals – like that which is ongoing over whether or not to use the military option against Iran’s nuclear program, or the debate surrounding the 2009 surge of troops in Afghanistan.”
But the AirSea Battle plan has far more expensive and dangerous implications. “The imagined result of ASB is the ability to end a conflict with China in much the same way the United States ended WWII: The U.S. military defeats China and dictates the surrender terms.” This is a drastic change from Cold War approaches, where nuclear-scale conflict was carefully avoided.”
And of course Mr. Snowden has made it clear the the executive branch of the U.S. government is carrying on war against the American people.
As important as FATCA is, the real problem is the Obama administration.
To all
Let me just throw a little quirk in this FATCA 30% withholding issue…
Does this mean that when a person asks VISA, PAYPAL or any other source of payments for a refund on a purchase made abroad..that refund will be short of 30% as well?
@Steve Klaus
Here is a quick summary of what the delay means… Admittedly stolen from another source. I haven’t had time myself, as I have hiking to do today. My wife is calling… “Get off that damn internet, and let’s go!” 🙂
The significant changes that can be found in IRS Notice 2013-43:
* FATCA withholding delayed until 7/1/2014
* Customer onboarding delayed until 7/1/2014
* Definition of a preexisting account has been extended to 7/1/2014
* Grandfathered obligation extended to 7/1/2014
* For withholding agents other than PFFIs (for example, USFIs), due diligence on preexisting obligations has been postponed by 6 months. Prima facie FFIs now need to be documented by 12/31/2014; other entities and individuals need to be documented by 6/30/2016
* FFI registration delayed by 6 months.
* Portal comes out 8/19/2013. To get on initial FFI list must be registered by 4/25/2014 to get on initial list that will be published on 6/2/2014
* Due diligence for PFFIs extended by 6 months for each category. However, enhanced review for high-value individuals has been extended by 1 year to 12/31/2015
Extension of all QI, WP, and WT agreements by 6 months
* Current W-8s and documentary evidence expiring on 12/31/2013 will now expire on 6/30/2014
“Treasury is intentionally deceiving foreign governments when it promises reciprocity.”
should read: “foreign governments are gleefully deceiving themselves in regurgitating what Treasury is feeding them”
@Mark Twain
Good point – they are trying to avoid the inevitable confrontation.
Just Me – thank you. That is very helpful.
@Just Me
Thank you for posting this, and to add, if a little bit of plagiarism makes a happy marriage you have my blessing 🙂
“A jurisdiction will be treated as having in effect an IGA if the jurisdiction is listed on the Treasury website as a jurisdiction that is treated as having an IGA in effect…
A jurisdiction may be removed from the list of jurisdictions that are treated as having an IGA in effect if the jurisdiction fails to perform the steps necessary to bring the IGA into force within a reasonable period of time.”
Rather subjective as to what constitutes “reasonable”, isn’t it? How can any nation can expect anything reasonable coming out of the USG when they created something like FATCA in the first place? I can’t see any nation clamouring onto IGA’s unless of course it’s to buy time in hopes that FATCA will derail itself, which of course only serves to strengthen FATCA’s ability to stay on track.
We’re screwed unless someone says “enough’s enough” or the US finds some way to spin a way to kill it as an act of heroism on their part.
@ all
I am sure many here have asked themselves the question: who are today’s policy maker’s which are most likely to make a profit down the road from the implementation of the “worst law most American’s have never heard of”. Why else do individuals such as Robert B Stack continue to pedal such propaganda? Are they any US politicians left who are actually working for the American people (Rand Paul and Posey withstanding)? Or are they just feathering the nests of their future profit making opportunities while they sell out the nation they are supposed to be serving?
@ all
Sorry for the grammatical and typo errors in the above comment! My honours English profs would not be pleased.
@ therapist604
Your point is well made. It always seems to come down to “cui bono”. BTW, IMHO, typos are finger falters, not brain burps. Shows nothing more than your brain is racing ahead of your fingers which is not a bad thing. Your meaning was clear and your English profs would undertand. 🙂
@ Em
Your kind comments have helped to restore my pride. I am a bit of a perfectionist.
Advisor.ca has their own spin on the FATCA delay (emphasis mine):
http://www.advisor.ca/tax/tax-news/irs-offers-six-month-relief-from-fatca-122891
Americans in Canada have six months’ reprieve.
FATCA, the Foreign Account Tax Compliance Act, comes into effect January 1, 2014. But with less than six months to go, the FATCA registration website is still not open.
To give countries more time to comply, the IRS will not require withholding until July 1, 2014. As well, new account opening procedures and related requirements will also begin July 1.
The act imposes a 30% withholding tax on certain payments made to foreign financial institutions and non-financial foreign entities that refuse to identify U.S. account holders and investors. To avoid the withholding, firms must document and share information about their U.S. account holders, an expensive and time-consuming process.
Kevyn Nightingale, partner with MNP in Toronto and the firm’s expatriate tax leader, isn’t surprised by the IRS’s move. “This is one in a series of extensions,” he says. “Administering FATCA the way it was written is a nightmare.”
Many countries are still in the process of negotiating their FATCA agreements, like Canada. Part of the holdup, says Nightingale, is “they intend to make the agreements reciprocal. That way, CRA can find out about Canadians with money in the U.S. and enhance CRA’s revenue generation capacity. Getting that process in place takes time. I don’t think IRS realized how popular the FATCA agreement approach would be.”
That’s because it’s much more effective to have local revenue generation authorities gather financial information, rather than each institution.
“All of these things point to it being more complex than originally contemplated, and taking more time isn’t a bad thing.”
The IRS FATCA registration site is projected to open August 19, 2013. The IRS had previously indicated the site would open July 15.
Nightingale anticipates the opening date will be pushed even further into the future. “Anybody who’s tried to make a database for more than 1 million of anything knows it’s difficult to do well,” he says. Add to that many countries and people who don’t want to comply, and “there’s no way they will get a complete database.”
Despite these delays, don’t wait six more months to get ready for FATCA.
“You still have to be working toward compliance as fast as you can,” he says. “There will be a point when they say, ‘It’s due now.’ ”
And since Canada’s easy for the IRS to reach, “it wouldn’t surprise me if Americans who live in Canada are the first victims. Some of those people are going to be made examples of. It will take until 2016 or 2017 for real penalties to show up, but it will happen. The important thing is what you do now will matter then.”
*****
I can’t wait for the IRS to try to “reach” Canada – then there will be some fireworks!
My typo was my way of showing I EMpathize but truthfully I do wish my fingers wouldn’t falter quite as much as they do and even more truthfully I have to admit I have frequent brain burps which show up in my comments. I wrote very little until we got an internet connection (about 10 years ago) so I still have a long way to go to get my thoughts expressed accurately on a computer screen. I truly admire those who can form long complex essay quality comments with such apparent ease. Just Me is one of many here at Brock who can do this.
You’d BETTER come in to my parlor, demanded the spider to the fly.
?And since Canada’s easy for the IRS to reach, “it wouldn’t surprise me if Americans who live in Canada are the first victims. Some of those people are going to be made examples of.”
Such an irresponsible statement! “Some of these people are going to be made examples of” Really? As if we aren’t already. This ought to have begged the question whether or not “these people” deserve to be “made examples of” This sounds like China during the revolution for heaven’s sakes! “What are your crimes, Americans abroad!?”
Looks like Mr. Nightingale is lookin to pay off his mortgage or put some kids through university.