RepealFATCA.com Roundup: News and Commentary on the Approaching FATCA ‘Train Wreck’
March 20th, 2014:
This RepealFATCA.com bulletin rounds up some important news and commentary from around the world on the looming July 1, 2014, “train wreck” of the “Foreign Account Tax Compliance Act” (FATCA). The headlines:
1. Even Tax Compliance Experts Decry Looming “Train Wreck,” Impossibility of Meeting IRS’s Requirements.2. Treasury (Inadvertently) Admits FATCA is a “Fishing Expedition.”3. Lack of “Reciprocity” Fatally Undermines Both FATCA and OECD “Information Exchange.”4. Rob Portman (Ohio): Big Pickup in Senate for Repealing FATCA.5. Canadians Fight Back.
My comment is off topic. Rocco Galati the Toronto Lawyer who who has a penchant for taking on the Government of Canada in the Supreme Court won his case today. Galati was opposing the apointment of Marc Nadon. He will be interviewed tonight on CBC radio “As It Happens”
http://www.cbc.ca/news/politics/nadon-challenger-rocco-galati-wonders-why-he-had-to-clean-up-mess-1.2582033
Some may recall that Mark Matthews was invited to Ottawa by John Weston MP to meet with caucus members, presumably to discuss the best way for the current government to get on the FATCA cattle train:
http://isaacbrocksociety.ca/2014/03/06/a-letter-from-john-weston-regarding-the-iga-we-need-to-educate-the-mps/
Whilst the US deserves universal health care, FATCA is not unlike Obamacare in a sense. It’s predicated on a single sole ‘good purpose,’ get everyone health care, but completely ignores the cost side of the equation which is work in progress. Stop the Mitt Romney’s of the world from socking away their billions, but uses a sledgehammer to crack a nut. Again FATCA is work in progress across each country’s legal systems. Without a world budget and taxation system which is identical, FATCA is not possible without discrimination – pure and simple.
Don, what do you mean they deserve universal healthcare? Like the horrible system we have here that the WHO rates as #30 in the world?
From Jatra’s article:
“Banks getting tired of incomplete information and spiralling costs of Fatca
Financial institutions are tired of dealing with the Foreign Account Tax Compliance Act (Fatca) amid continued confusion over what needs to be done, one expert warns. Jon Watts, director and head of banking and securities, Fatca at Deloitte New York, told delegates at an Inside Reference Data conference in New York this week that even the largest financial institutions are fed up with Fatca. ”
To which I smile and say:
http://www.youtube.com/watch?v=yge311sFhC8
PLEASE WATCH…IT SHOULD BE POSTED IN THE HEADER OF THIS SITE
Though the tax evaders who motivated this law to get originally passed do not like it, it in fact is a godsend. As the United States faces an epidemic of unpatriotic tax evaders who availed themselves of every offshore secrecy jurisdiction in an effort to benefit from living in the United States while externalizing the costs of this country to others, it’s finally time to pay the piper.
If you are a person who had a secret account in the Caymans or in Jersey or BVI or any of the other secrecy jurisdictions, you have only yourself to blame. Just got too greedy, eh? Forced the feds to finally crack down on you. You are always free to renounce your citizenship if you don’t feel the safety and security of living in the United States suits you. There are bankers in Somalia and other light-touch jurisdictions who are only to willing to accept your deposits and then abscond with the lot.
In fact, FATCA is the only thing Congress has passed in the past ten years that negatively affects the UHNW individuals. It’s about time and perhaps a sign that the American public have grown tired of the self-dealing “Americans” who have sought to enjoy all the benefits of living in the United States while externalizing all the costs of this democracy. If you don’t like it, your Somalian bankers are waiting with open arms.
@Tom Hunter, fair enough about FATCA going after greedy Americans hiding money offshore whilst living within the Us; but FATCA is causing too much collateral damage against bona fide Expats living abroad, due to the evils of citizenship-based taxation. If the US could adopt a residence-based taxation like the rest of the world then FATCA would indeed make a lot of sense as a means of fighting tax evasion. But in it’s current form, it just looks like a witch-hunt.
I’m not going to deny that FATCA will result in more money reaching US coffers because a significant percentage of Expats would probably wind up owing double taxation to the US due to PFIC taxation on non-US based mutual funds, and from capital gains taxes owed from the sale of real estate; but these revenues will still fall short of the billions having to be spent by foreign financial institutions in efforts to prepare for FATCA; many Expats will choose to renounce, especially because of huge accountant fees in efforts to become compliant; plus, huge number’s will grow to heavily resent America’s imperialist controls.
@TomHunter: You are always free to renounce your citizenship if you don’t feel the safety and security of living in the United States suits you.
This, in a nutshell, reveals you have totally missed the point of this site.
The people most hurt by FATCA do not live in the United States, and have no intention to do so in future. Their ‘safety and security’ is provided by other countries. Your insistence on mentioning only Somalia is false dichotomy. There are many countries that are neither the United States nor Somalia yet are perfectly nice places to live and work, and a lot of them are better than the United States on many measures.
United States citizens living outside the US are less free to renounce than you suggest. There is a $450 renunciation fee and a possible ‘exit tax’ for exercising the privilege of disconnecting from the ‘land of the free’.
I have kept my response civil because you are new here and it is clear that you have not taken the time to understand the issue fully. Other folk will doubtless also chime in, and some of them may not be as polite. If you have flameproof clothing, now might be the time to put it on!
@Tom Hunter
A birth certificate is not a deed of title, it does not represent a claim of ownership nor provide a share of my economic productivity in perpetuity. You have no legitimate claim to my foreign born children without their consent, absent their ability to do so then only with the consent of their legal guardian. Those services received from the government were paid my taxes or those paid by my parents. My university training was partly paid by my parents, small scholarships, part-time jobs and participation in the ROTC program which incurred an eight year military service obligation, which I fulfilled with eight years active duty during the Vietnam war. The first obligation of any government is to protect those living within its borders, to provide a safe environment where everyone can grow and achieve their full potential, anything less would have been immoral. That you did what any government is supposed to does not entitle the US to a share of the tax base of my country of residence and citizenship
@monalisa
…. a significant percentage of Expats would probably wind up owing double taxation…..
Looking at it purely from a FATCA p.o.v. (not OVDP) sorry but this statement is not correct, in fact it is totally the other way around which is a point you always should make to FATCA supporters who do not understand the twisted motivation behind it .
Only a very small number or % of the 7.5mio expats worldwide would owe anything even including PFIC etc. That is and was the whole point of getting rid of CBT .
For the IRS it is and never was about compliance or education. Going after the stereotype rich expats who apparently live tax free in exotic locations, which is a great narrative, albeit as fictional as the assertion that civil penalties (especially for expats) are about compliance and not just revenue generation or the big myth of $150 billion p.a of lost tax revenue due to “offshore tax schemes” (Senate Subcommittee Report).
@ Tom Hunter
There is one thing no German, Chinese or any other government from a developed nation ever would do: taxing its citizens when they live abroad. I bet every competing nation of the US is quite happy that the US is shooting itself in the foot by subjecting its citizens (and green card holders) living abroad to double taxation, local (e.g., foreign) and US. To understand the issue, you have to know that the US is the only country in the industrialized world that collects taxes from its citizens living abroad. If you live as an American in Hong Kong, you pay first income taxes in Hong Kong, then in the US. What this means is that you always have to prepare two tax returns, whether you owe taxes to the US or not (there are some exclusions and double tax treaties). Every other country has a territorial tax system – you pay income taxes where you live, where you consume services. Imagine for a moment every country had the US system, and you lived with your French spouse in Germany. That would mean three tax returns, a complexity impossible to master.
Let’s leave aside the costs for American individuals to file two returns and carry the costs of paying tax accountants versed in the US and the local laws. Let’s also put aside the consequence that any US person abroad always has to pay the higher of two tax rates for each income class. For example, an American in Germany will pay close to 50% income tax to the German government (but does not owe any more income taxes to the US as tax rates are lower); unlike German taxpayers in Germany, however, cannot take advantage of local tax breaks like buying and sell gold tax-free, as the US is subjecting gold sales to a long-term capital tax rate of 28%. As an added insult for the poor American abroad, her foreign bank may kick her out thanks to new IRS reporting regulations to foreign financial institutions (e.g., FATCA); regulations so onerous that many banks now rather deny securities and bank accounts to US customers, labeled “toxic citizens” by the WSJ last year.
While so far you might not care about the pledge of your fellow citizens abroad, here is a reason why you should. The US system reduces the hiring and experience gathering of Americans abroad, and as a consequence is most likely bad for exports.
Imagine two global companies, one German, and one US. Let’s also assume that each likes to have at least some expats running their foreign businesses, e.g., in Singapore, an Asian hub. Now, our respective German and US executives arrive at the same time, have the same style corporate apartment, send their kids to the same school, and have the same compensation. The executives are now are subject to Singapore income tax of about 15%. That’s where the story ends for the Germans and their Corporate Headquarters. But that is where the expensive “fun” starts for our US Company. Since its employees need to pay 35% tax rate on Singapore income (i.e., ~15% to Singapore, 20% to the US to get to 35%), they will demand from their parent company to make up the difference in order to roughly have the same after-tax income as local peers. The US firm will comply to be competitive in the labor market. But wait – this tax reimbursement within itself constitutes salary and is a taxable event; and the same goes for any housing allowance and other items, to be taxed in the US. If you take it all together, a US expat costs 2 to 3 times a local (or non-American) executive.
In good times, this does not matter. Whether a US company pays $250K or $500K for its US executives abroad, nobody cares. In a recession, however, or whenever there is a cost cutting program going on at home, guess what happens? Yes, you got it…bringing the expensive expat home to make cost cutting targets. I saw it at two different global companies in the recessions of 2002 and 2008. While the US Company brings home its expats and with them their collective experience gained abroad to sell US products or services, the German (or any other non-US) company has no incentive to recall its people. Their executives stay in the foreign location, continue to gain experience and sell products as there is no extra costs involved.
If Congress wants help the US be successful abroad, raise exports, and thereby create jobs at home, the US needs to move to a territorial income tax system, i.e., stop subjecting its citizens to US income tax when living abroad. Same goes for the corporate income tax. It’s time to be in sync with the world !!
@TomHunter:
Welcome to the site! You will find that the political views of posters covers the entire spectrum from libertarian to progressive. Most of us are US emigrants, “accidental” Americans residing abroad or related to overseas Americans. One point that unites us is our opposition to the extra-territorial US law known as FATCA.
There are around 7.6 million Americans who reside outside of the US who are impacted by FATCA’s wrath. The FATCA issue for these 7.6 million Americans is succinctly described in a newspaper editorial: “Lumping all Americans who live overseas in with wealthy tax cheats shows a blithe indifference to how little the world of offshore banking has in common with normal banking needs of Americans abroad.”
For the impact that FATCA is having on your fellow Americans abroad, many Americans in this country have been advised that their bank accounts will be or already have been frozen until FATCA release documents are signed and copies of FBARs are supplied (even though the 2013 FBAR is not due until June 30, 2014!).
In addition to complying with complex and sometimes grey US tax regulations, many Americans here and around the world are taking steps to expatriate, although this can be easier said than done. Many countries do not grant citizenship as easily as the US does to its immigrants. In addition to often lengthy and stringent residence and other economic requirements, there can be language and citizenship tests to pass.
Of course, after obtaining foreign citizenship there can be the issue of the US exit tax, which brutalizes retirement savings accounts and has an asset threshold that is not indexed for inflation and related US currency devaluation. An exit tax on income or assets not earned in the US is ludicrous.
Another area where FATCA fails is with data protection. You might wish to read this article on FATCA which appeared in Lebanon:
https://now.mmedia.me/lb/en/commentaryanalysis/fatcas_security_problem
Again, welcome to site.
@ Tom Hunter
Tom I am not sure if you fall into the category of good riddance when it comes to expats and their problems but if you have time please read below about how unjust citizenship-based taxation is for Americans already living abroad and that’s what’s causing renunciations and a major factor fomenting resentment toward the U.S :
Imagine you live in California, the state with the highest state income taxes in America. You decide to move next door to Nevada that has no state income tax. Now how would you feel if CA says, “we don’t care if you’ve left our state, we are going to impose our taxes on you anyway!” Suddenly you get a bill from the CA Revenue Service. But before that even happens, and before you even leave CA to move to NV, the state actually imposes an exit tax of 30% on ALL of your belongings or they won’t let you leave. And if you still have any property in CA, they consider it sold and charges you income taxes on THEIR valuation on the day you want to leave. If you don’t pay, of course, you are not “permitted” to leave and move to Nevada. Do you think that’s fair?
Now you’ve submitted to their highway robbery and paid over the money they demanded and move into your new home in NV, thinking you are finished with CA. But wait – not CA says, we don’t care where else you live. Once a Californian, ALWAYS a Californian! So they tax you on your income even though you no longer live in CA, and, of course, because NV has no income taxes, you now must pay ALL of CA income taxes.
Now imagine that in order to make sure you keep paying CA, CA forces NV banks to turn over to them the bank account details and balances of every former resident of CA or that bank will be penalized 30% withholding on all of their dealings with any CA entity. And because CA is big and powerful, and NV needs their tourist dollars and access to CA ports, CA forces the state legislature of NV and the governor to agree that NV will inforce CA laws on NV residents. How are you feeling now?
Wait, we’re still not done. So you put up with this chicanery because things are going well for you in NV. You decide to sell your NV house and buy a new one. Suddenly there’s a knock at the door and it is a CA Revenue Service agent congratulating you on your new home but he presents you with a CA capital gains bill for what you made on the sell of your previous home – both, of course, were in NV not in CA at all.
We’re not done yet…. While you’ve been working in NV you have been saving money in a retirement account each pay check that, it being NV, isn’t taxed at all. Then there’s that knock on the door again from CA demanding that you pay ordinary income taxes to them on those retirement savings because they consider it income because it doesn’t comport to CA definitions of tax-exempt/deferred savings. How are you feeling now?
Of course, all of these impositions by CA come with the myriad of rules, regulations, and multi-copied, layered forms to fill out, each carrying a fine of $10,000 if not filled in correctly. You have no chance whatsoever to do this yourself without risking multiple $10,000 fine, so you have to pay an accountant at least $2,000 just to fill in the forms. And if he/she makes a mistake, YOU will still be charged the fines. Oh, yes, I forgot – if CA believes you made a deliberate mistake, you are subject to a 50% forfeiture of your assets.
So how do you feel about being from CA now? Does that make you “proud” of that state?
Sadly, we’re not finished with this very real parable… Now imagine that your parents were living in CA when you were born but moved to FL – another state with no income taxes – when you were 1 years old. Now imagine that you are 30 years old, settled into a career and life in FL having never lived anywhere else but FL, but there is that knock on the door again. CA tracked you down and tells you that because you were born in CA you are liable FOR LIFE to continue to pay CA income taxes. You, of course, protest – too bad! You are not “permitted” to deny your CA birthright unless CA decides to let you. And the only way they’ll let you do that is by charging you 30% on the value of ALL of your assets, charge you a fee for applying to let you out, but will refuse to let you do so if the reason you are doing it is because you object to their entire cockamamie tax scheme.
Of course, instead of having moved from CA to a no-state income tax state, you move to, say, IL then CT, then NY then FL, CA will follow you to each and every state and continue to impose their scheme on you. They make allowances, of course, for the taxes you paid in each state, but because CA is the highest tax state in the country you will still have to pay them something. And, of course, the filing and potential for fees increase, the complexity increases along with your uncertainty. You are as trapped as any fly that fell into a spider’s web!
Now it dawns on you: You have an obligation to pay taxes to another state where you don’t live and you receive absolutely no benefits at all for doing so. So what are you really paying for? Why the “privilege” of having one time been a resident of CA!
Some of us Americans believe the purpose of taxation is to pay for services from our government that we receive in return, not simply the privilege to pay taxes. Is this the America you REALLY think represents freedom?
@Tom Hunter
Most people on this site are actually also really unhappy about Americans, particularly those who live and work in the United States, using tax loopholes and offshore secrecy jurisdictions to evade tax. They have really landed those of us who live, work and plan to retire abroad in trouble. I understanding your anger about the games played by the UHNW (ultra-high net worth individuals), since these are real, but FATCA did not end the games that the extremely wealthy can play with shell corporations.
Almost everyone who posts on this site lives outside the U.S. Here are some ways in which FATCA hits the bottom 80% living abroad hard. 1) The U.S. definition of who owes it tax is astoundingly broad, including people who were merely born abroad to a parent who grew up in the U.S., even if the parent never sough U.S. citizenship for them. Many ordinary individuals, particularly in Canada, are finding that they might owe the U.S. a lot in penalties if they have had as little as $10,000 in their local bank accounts (including any joint accounts with their spouse) 2) The U.S. has started putting very heavy penalties on not completing paperwork on foreign trusts, which includes some types of foreign pensions and even Canadian savings plans for disabled children. This paperwork is very expensive and makes life difficult for people with small pensions plans of the wrong type. 3) U.S. laws make financial planning very difficult for anyone with a non-U.S. citizen non-resident spouse, which is the majority of us living abroad.
@ Tom Hunter
You probably say to yourself by now o.k. if the expat does not want to remain part of “Club Fed” and pay his “fair share” for services and infrastructure etc. why just not renounce or relinguish. End of story… right ?!
No unfortunately not , if you leave the US tax system, the IRS takes a chunk of everything you own, no matter where it is.
Example of how the exit tax works: Say your father was an American entrepreneur who decided to open a business in Switzerland back in the 1940s. He marries and has kids, including you. The dollar is very valuable, in 1970 1$ = 4 Swiss francs (CHF), and with inherited money you buy a house for 2 million francs (= 500,000$). You live in this house, start a family, and approach retiring age. Your father’s business hit rough times, and you sold it. You work with a Swiss partner in a small business that gets you and the family through the month, but you don’t have much left at the end of the month. Thankfully the house is fully paid for. FATCA comes along, and your bank closes your accounts, and your Swiss business partner is telling you he’s going to have to take your name off the business accounts, because he doesn’t see why his Swiss business should have to report to the IRS. You decide that renouncing is the right thing to do; you don’t live in the US, never have. Your life is in Switzerland and always has been. Being American is a cool part of your Identity that distinguished you from other Swiss, and it was nice to feel you had roots going back to a distant homeland (maybe how some descendants of Irish immigrants in the US feel?). But having two nations tax you at the same time, and being dependent on laws being made far away without your consent, outweighs any emotional ties.Now comes the fun bit: Your house has gained in value, it’s now worth 3 million francs. But because the $USD has lost a huge amount of value , while the Swiss franc has stayed stable, in $ your house is now worth 3.25 million dollars. In the IRS eyes you are 2.75 million dollars wealthier than when you bought the house with the inherited dollars. (That same amount of dollars, 500,000$ is now only worth 460,000 francs instead of 2 million).Subtract the exit tax deduction of 600,000$ (original amount from 2008, for 2013 the exclusion amount is $663,000) and your left with 2.15 million dollars of what the IRS calls pure profit. 15% capital gains tax, and you owe the IRS 322,500$ for the privilege of no longer being American. I don’t see how he could possibly pay this without being forced to sell his house, and buy a much smaller house. He might also need to empty his retirement fund. N.B. This scenario assumes he has always known about needing to send details about his Swiss earnings to the IRS and has always complied with increasingly complicated requirements. Had he not known about this, and stupidly only paid taxes in the country he was living in, then he would to jump many hurdles to even start thinking about exit tax. First he would have to back file for the last few years (anything between the last 3-8 years, depending) and pay back taxes and fines plus interest. The IRS amnesty program (OVDP) has a standard penalty of 27.5% of your assets, so he might be losing almost a third of his pension fund before having to pay the exit tax. (It is possible to fight and bargain to reduce the penalty in some cases).
Someone tell my how this is his, or anyone’s ‘fair share’?
When the small dictatorship of Eritrea sends agents to their expats’ homes in the US to collect citizenship tax, we call it extortion and a human rights violation. When the US does the same thing, it’s cracking down on tax cheats to get its ‘fair share’ ??!
The US is ruining peoples’ lives, and spreading fear and hatred of the US government. End citizenship taxation and hardly anyone will renounce, and the 7.5 millions of Americans abroad will be talking about what a great place America is, instead of telling the world how they live in fear of a faraway government and feel persecuted. Jefferson and Washington would be ashamed of this double taxation without representation !!
@Theta, I’m sorry but I find it hard to believe that only 7-10% of Expats wind up owing double tax because I suspect that many expats file their tax returns in a simple way without currently working out PFIC taxation via the 8621 form. The bulk of people with any sizable gain would probably wind up owing at least nsome US taxation.
Furthermore, if FATCA is implemented, the IRS will be able to hit Expats with FBAR and even non-filing fines. If nothing else, they’ll be able to use FATCA as a penalty revenue generator; the tax lawyers will be able to earn loads of money in fees in efforts to get these penalties lifted, thus further helping the compliance industry…I’m sure they’re already drooling!!
However, in spite of what I say, I’m sure that the foreign financial institutions will wind up having to fork out even more to get ready for FATCA… they’re will also be a huge amount of resentment and bad feeling directed against the USA.
I believe there will eventually be a huge degree of pushback plus a surge in expatriations. It will be interesting to see if the US will try to be more reasonable or if they’ll use an even more draconian system…
@monalisa
I think you really overestimate the impact of PFIC taxation via 8621 for the big majority of expats.
You have to look at it from a comparative marginal income tax bracket perspective and this clearly shows that there are not many countries out there that tax less than the US.
Keep in mind that the increase in value is always taxed as ordinary income (marginal personal tax rate) and not as capital gains or dividends. (except for QEF)
Look at your example, you had close to 50 undeclared PFICs and owed only de minimis tax on it otherwise your CPA would have not supported your VD with filing amended returns.
@Theta, I am far from wealthy but wound up owing over $11,000 due to pedantically calculated PFIC taxation; I count myself lucky that I didn’t get funnelled into OVDI and lose at least a further 27.5% of my total worth!! My accountant admitted that many other prepare would have felt obliged to railroad me into OVDI due to the huge tax bill.
I decided to renounce after realizing that I would continue to be stuck with huge ongoing accounting fees…However, though all my filing is finished, I still live in grave fear that I could still face a nasty audit within the next three to six years due to having owed substantial taxation…. I will thus be biting my nails for at least another three years…
@monalisa
$11,000 for 6,7 or 8 years ?
No, in total, so perhaps not so bad actually, but still painful. I am actually frightened that the IRS might try to enforce the Reed Amendment against me though.
@monalisa
yes of course in total but was it for a time period of 6,7 or 8 years ?
And since you are not in the UHNW category be assured that Congress will not try to enforce the Reed Amendment against you.
@Theta, I understood de minimus taxation to be less than $1,500 per year.
Anyway, I’ve divulged much private information on here and am genuinely afraid that with IRS agents reading this site that they could fairly quickly figure out who I am, especially because I renounced…I genuinely fear that I could still face reprisals….
Does anyone know where a full cop of FATCA, CBT and of FBAR exists online? It is easier to fight something–particularly if one is preparing a legal brief arguing against the FATCA , CBT and FBAR without seeing the government’s position in its own words. Any legal brief to bring a constitutional challenge needs to reference the original documents. Without going into a lot of detail here, FATCA and CBT violate both the 14th and 5th amendments of the U.S. Constitution.. Perhaps other provisions of the Constitution as well, but that I can not be certain about until I see and can read through all the primary documents. The IRS does not have the FATCA legislation posted at its site. I have begun researching Supreme Court cases relevant to FATCA and CBT practices. While there is still some distance to go, there are already surfacing a number of Supreme Court cases that indicate the Supreme Cort would be heavily inclined to nullify FATCA and CBT if a challenge were brought before the Supreme Court. If you are interested in joining the working group I have formed to bring a U.S. Constitutional challenge against FATCA, CBT and FBAR (FBAR would probably need to be challenged in a separate brief) please contact me at mstrunorth@gmail.com
Sincerely,
Susan Ouderkirk
@Theta, I hope you’re right 😉
Had I known about PFIC taxation and all the complexities, would have avoided UK mutual funds like the plague! In fact, I probably would have just stuck to a simple savings account.
@Theta, you might not fully understand just how punitive the PFIC tax rules are. From this article:
“…the PFIC rules require a ratable allocation of any gain over the years during which the shares were held and that gain is taxed at the highest rate on ordinary income in effect for each of the years involved, rather than the beneficial long-term capital gains rate in the year of disposition. An interest charge is also imposed on the tax, and begins running from the period to which such gain is allocated. In certain situations, this tax can exceed 100% of the gain.”
@ Watcher
……..you might not fully understand just how punitive the PFIC tax rules are….
lol….that is funny because I wrote a book about it.