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.
Examples of us?
Hmmm, are they planning to delay us into submission?
The’ll use a few of us to prove that resistance is futile. “Your life as you know it is over”.
Some notes for a brief against a Canadian FATCA IGA
1) The key argument of any “national origin discrimination” case against FATCA is that there is nothing in Canadian law that defines so-called “US-persons”. There is nothing in Canadian law that allows systematic discrimination against certain Canadian citizens due to a
specific place of birth. And there is nothing in Canadian law that arbitrates any foreign citizenship – including US citizenship.
2) There are very specific Canadian laws – including the Charter and Human Rights Act – that prohibit discrimination based upon national origin or place of birth.
3) A Canadian FATCA IGA would strip US-born Canadians of the protection of the Charter, while Canadians born anywhere else are not affected
4) Consider the “perfect plaintiff”: a long-term Canadian citizen who’s only tie to the US is birth due to medical referral (i.e. Canadians in Ontario born in Buffalo hospitals during a nursing shortage). This perfect plaintiff has no further economic or physical presence relationship with the US. There are many Canadian “border babies” that fit this description.
5) It is not just national origin discrimination that violates the Charter, it is also “exposure to harm” due to that discrimination. This exposure to harm affects Canadian citizens having a totally legal Canadian bank account account, containing only Canadian earned funds, solely because of where they were born. So the discrimination leads to harm.
6) The effective damage of FATCA is widespread in Canadian society, affecting approximately 3% of our population, plus their families and business associates.
Just checking back in….
You would have thought the WSJ would have done more than just repeat the Administration line. Go figure. You can tweet the author… @srubenfeld
http://blogs.wsj.com/riskandcompliance/2013/07/12/treasury-extends-fatca-compliance-deadline-6-months/
USA TODAY has a post up, open for comments. I found it on my phone newsfeed so unsure of the link.
http://m.usatoday.com/article/news/2511997
@Citzen inthewild…
Thanks for the link. I will check it out. Here is another where I have just placed a comment… Robert Woods at Forbes is writing on the subject.
As he says, tongue in check…
@Citzen inthewild..
I had a look and saw the that story previously. I don’t do facebook, so can not comment. Not much in the way of meaningful discussion is there? Maybe someone with FB account would like to jump in. 🙂
I posted a link to repealFATCA.com but it was taken down. I tried a more sneaky way this time 🙂
@ Just Me
Robert Wood just posted a reply to your excellent comment. He doesn’t seem to think that FATCA will die or even be crippled much. Delayed? Yes. Repealed? No. (Says he.)
@Em…
Thanks. Well, I have to consider that he may be right. This Jeannie is pretty darn hard to put back into the bottle, now that the U.S. has unleashed it. Time will tell if he is right.
BTW, Em… I noted your comment about writing abilities, and I wished I had your flair for rhyme. 🙂
@Bubblebutin…
I often us bitly links, but remove the http: and that assures that it is not active, but the shortened link can still be copy and pasted into a browser IE. http://bit.ly/11iq9h9 becomes //bit.ly/11iq9h9
@USCitizens… Thanks for comments. Have an hour or two to catch up. That development in the Pacific is certainly one to keep your eyes on.
I saw this this morning…
The Military’s of the world need an enemy, so this stirs the military folks up!
and finally… I just posted this elsewhere…
More to Jim Jatras point about Mr. Poseys bill H.R. 2299. It would be helpful also for those of us to vote and make comments at Popvox. Right now the Oppose are ahead of the Support, and we should turn that around…
https://www.popvox.com/bills/us/113/hr2299
I just voted and made a comment to generate a letter to my Congressman.
@Em…
I replied to Robert. I have to give it to him, he is one of the few regular blogs that will respond publicly to comment one makes!
If necessary we need to be willing to smash the bottle if the Jeannie cannot be put back in.
The problem has always been that to the IRS, the lawyers, the diplomats etc. “us” i.e. IBS, Maple Sandbox, ACA, AARO are “edge” cases to use an engineering term. Now an edge case in engineering can cause a catastrophic failure. The question is whether that will happen to FATCA.
http://en.wikipedia.org/wiki/Edge_case
An edge case is a problem or situation that occurs only at an extreme (maximum or minimum) operating parameter.
For example, a stereo speaker might distort audio when played at its maximum rated volume, even in the absence of other extreme settings or conditions.
An edge case can be expected or unexpected. In engineering, the process of planning for and gracefully addressing edge cases can be a significant task, and one that may be overlooked or underestimated. Non-trivial edge cases can result in a failure of the object being engineered that may not have been imagined during the design phase or anticipated as possible during normal use. For this reason, attempts to formalize good engineering practices often incorporate information about dealing with edge cases.
@Tim, That is VERY interesting analogy and had me heading for the bookcase and my copy of Charles Perrow’s Normal Accidents. He argues that high-risk complex systems always fail and the failure becomes catastrophic when 1. components interacts in ways that the designers never imagined and 2. they are “tightly coupled” meaning that the processes “can’t be turned off, the failed parts cannot be isolated from other parts.”
Attempts to fix such systems by adding safety features simply make them more complex and more likely to fail. It’s an interesting argument and one that could very well be applied to FATCA. Treasury is trying to “fix” it by making it more complex – are the seeds of failure in the system itself? That would make an interesting post…..
http://www.themontrealreview.com/2009/Normal-Accidents-Living-with-High-Risk-Technologies.php
@Victoria…
Excellent point. Even if it is not catestrophic, as in a black swan event, perhaps, a simple word can be used to describe what you are talking about “Entropy”
It is defined in many ways, but this certainly will apply.. “A society or system that is getting worse or deteriorating gradually!” FATCA is that in spades… So gradually or catesprothically, our FATCAnatic ideologues are sowing the seeds of destruction with this grandiose GATCA scheme.
I think entropy is exactly the right word to use when when looking at the FATCA fiasco. I’ve read that it takes a force working within a system to increase its entropy. The more the FATCAnatics twiddle the dials and poke and prod at their FATCA problems, the more complexity, confusion and ultimately chaos they create. They are in fact increasing the entropy of the system. We can hope the FATCA system will eventually self-destruct but I’ve also read that it takes a force from outside of a system to decrease its entropy. That’s the part that I get hung up on. What is that force and who will be behind it? Will it be Just Me with his tireless attempts to introduce the facts of FATCA to as many people as he can reach; or some words of wisdom on Victoria’s blog; or something Badger writes; or one of Shadow Raider’s face-to-face meetings in DC; or the lobbying efforts being made by the ACA; or James Jatra’s work behind the scenes; or Bill Posey’s letter to Jack Lew? Who knows? It could be one little push, exerted in just the right place, at just the right time, or it could be a combination of all of the forces being exerted against FATCA that decreases the entropy in that system. One thing that our anti-FATCAnites have in common is empathy. They understand the problem and are concerned about the victims. In other words, they have empathy. They are pretty darn smart too. Let’s try to remain hopeful that ultimately these outside forces will successfully decrease the entropy and FATCA will falter, fizzle and fade away.
@Tim and Just Me, Thank you for giving me ideas for today’s post. Here it is: FATCA: A Project Audit:
http://thefranco-americanflophouse.blogspot.fr/2013/07/fatca-project-audit.html
Enjoy! 🙂
@Em, I’ve asked myself very same questions: What’s the “tipping point”? What will make the difference? Who do we need to talk to? Who haven’t we reached yet? When we write or comment what is most likely to get heard?
No answers here but I think we are committed to plugging away at it. Just Me, of course, is our inspiration.
A key component of the FATCA plan and the key stakeholders never consulted or considered: the end users directly affected by it, and how they will respond.
I doubt the authors of FATCA realized that many individuals impacted are in fact resident citizens (and taxpayers) of other countries. And might respond with organized and collaborative opposition or litigation under their country’s own laws.
They also missed the fact that, for the rest of world, place of birth does not define economic nexus, it defines national origin.
So far, it seems like the only front line end-users directly experiencing FATCA impact are “US persons” in Switzerland. They are being embargoed. However, freezing persons with a US birthplace out of banking services would be essentially impossible in Canada.
With the world’s largest % concentration of so-called “US-persons” and “accidental Americans”, advanced human rights laws, tradition of legal activism and lawmaking through litigation, and its high level of public participation in financial services, Canada is a test kitchen for the “end-user response” ingredient in FATCA’s unproven recipe
@Victoria…
Your FATCA Project Audit was the first thing I read this morning. I loved your “kids with a bowl of spaghetti on a white couch” imagery and your last sentance, “If you don’t know where you’re going, any road will take you there.”
I understand what you were trying to convey, however, I must say, there are some in the FATCAnatic ideologue community (The OECD /Treasury technocrats, some liberal politicians and Tax Justice Types) who knew exactly where they were going. A GATCA was the desired end state! The route to the destination mattered not one whit to them. If the ill conceived unilateral FATCA was to be the vehicle, then they jumped on for the ride!
‘Opportunist’ is another word you could use to describe them. They needed that “tip of the spear” for their ideological war, and the U.S. Congress unintentionally provided it.
As for the ‘unknown unknowns’ that will impact the journey, EM and Wondering makes some good points. I continually ponder what it will take for a wider media to finally wake up and take an interest in this story. Probably something I haven’t yet considered. I have thought for a long time that DATCA would be the trigger point, or the achilles heel of this adventure, but it could be something else unforeseen. Whatever it is, “Hubris” will play a role in undermining the project without any intervention of us few canaries chirping away on the sidelines!
@Just Me, You’re absolutely right – who knew that these people were dreaming such dreams?
I am convinced that this law is going to come back and bite the U.S. in the ass. It was inevitable that they would lose total control over FATCA from the moment they had to start negotiating with foreign governments. Now it really is anyone’s guess what the “final” result will be. We may be looking at years of negotiations, counter-proposals (and counter-measures) and GATCA will become a bloated monster where everyone spends a ton of money for very little in return. Might be good for China though….
@ Just Me, Victoria, et al,
What’s the tipping point where there is a critical mass of public interest?
How to get the press interested? Good questions!
My old school chum is a leading justice and courts reporter and we stay in touch. I tried to get this issue on his radar, but a long as it was framed as a tax, finance or business issue, it was not his beat.
However when he learned that Constitutional expert Peter Hogg had written an opinion, and it had also been discussed with another constitutional lawyer Joe Arvay, there was interest. Because it was now re-framed as a justice and constitutional law issue.
But then his newspaper offered their top senior editorial staff a buyout package. An offer too good to refuse – he took early retirement. He will probably continue to write and publish, however he has left the bully pulpit of a national daily.
Two lessons learned:
How the issue is framed is critical. In Canada, FATCA is not about stopping tax evasion – we are not a tax haven by any definition and FATCA offers Canada zero benefits – its about national sovereignty, extra-jurisdictional over-reach, and the human rights of individual Canadians regardless of birthplace.
We can’t rely on the press. In Canada they are downsizing; and the result is press-release journalism and non-analytical single source stories.
@Wondering, I think you are on to something. It’s about being a “connector”. That can be using social media to spread the word, writing articles and making comments to articles but also (and this may actually be even better) 1. find some angle that you think will interest someone and then send it off with a note “this might interest you because” and start a conversation and 2. get people together. A and B are both people you talk to on a regular basis – how about seeing if they want to talk to each other? Make the intro and then step back and see what happens. It’s worth a shot.
Five ongoing concerns about Fatca
http://www.efinancialnews.com/story/2013-07-15/five-ongoing-concerns-fatca?mod=sectionheadlines-home-AM