UPDATE:
Russian Finance Minister wants to discuss FATCA agreement with US during visit to Washington
Innocente has provided a Google translation of a new Russian article from Vedomosti which is worthy of its own post. It has also been added as a comment to this previous related post: Why Russia’s oligarchy supports FATCA.
A week or two ago, it appeared that a FATCA agreement between the U.S. and Russia was close to being signed, despite the events in the Ukraine and Crimea. Now there are fears that the U.S. may delay the agreement as a sanction for Russia’s annexation of the Crimean peninsula.
There appears to be much more at play here than meets the eye. Russia has been demanding true reciprocity from the U.S. for any FATCA or FATCA-like deal. The Crimean crisis may be just the excuse the U.S. needs to back away from a promise it has no Congressional authority to keep. Empty promises haven’t kept dozens of other countries from signing IGA’s, but Russia has been steadfastly calling America’s bluff. Now, FATCA may move to the very centre of the growing political, economic and military showdown between these two old Cold Warriors, especially once withholding penalties on pass-through payments begin to hit European and American banks.
Translated below is the Vedomosti.ru article dated March 31, 2014 entitled: “США могут отказаться подписывать с Россией соглашение о FATCA” :
U.S. may refuse to sign an agreement with Russia on FATCA
Russia is ready to join the U.S. law on the exchange of tax information. But the U.S. may refuse as a punishment for Crimea.
Margarita Papchenkova
Vedomosti.ru
31.03.2014Last week, the Finance Ministry sent the government a draft directive on signing the agreement with the U.S. on the exchange of information, said two federal officials. Such an order was given to the Ministry of Finance at a meeting with First Deputy Prime Minister Igor Shuvalov said his representative, after the approval of the government will give directives to the Ministry sanctioned the negotiations with the U.S. . There are only technical obstacles, such as transfer agreements, says official familiar with the position of the Ministry of Finance. A ministry spokesman declined to comment.
In fact, we are talking about Russia’s accession to U.S. law FATCA (Foreign Account Tax Compliance Act). Requiring banks and financial institutions of all countries by March 31, 2015 to supply the U.S. Internal Revenue Service (IRS) information on operations of U.S. customers. If the bank does not attach to the system before July 1 this year, it faces sanctions: a payment to its address of any passive income from U.S. assets will be deducted 30 % tax (currently tax at source in the U.S. – 10% on dividends and 0% for percent). And in 2017 – with the proceeds from the sale of shares or bonds of U.S. companies, as well as ” transit fees “.
But the foreign bank can transmit information not directly but through the local tax authorities. To do this, the government should sign an agreement with the United States. This option was chosen, for example, by the UK and Germany.
Russia was going to conclude an agreement last summer but negotiations dragged on. It was decided not to sign an agreement on FATCA but a mutual exchange of information ( i.e., the United States is committed to providing information on Russian taxpayers). Draft agreement reproduces almost U.S. law, although FATCA it is not explicitly mentioned.
But now there may be a new unknown obstacle, which will determine whether the United States to sign an agreement, says an official involved in the discussion of the project: “As long as the signals from the United States have been reported, neither good nor bad .” Washington could delay the signing, the Ministry of Finance officials previously feared: it can become an informal sanction for the Crimea annexation.
Damage to the financial system can be overwhelming. 30% tax on payments to Russian banks and financial companies should hold not only American, but also any banks that joined the FATCA, including European. Also there is a danger that banks will close correspondent accounts of those who have not joined the FATCA, then may lock dollar payments feared Russian banker.
U.S. Treasury refused to comment on the talks. Last week, Finance Minister Anton Siluanov reassured: the worsening of relations does not lead to the transfer agreement not being signed – but officials will do everything so that banks can provide information to IRS.
The government is preparing a fallback really tells White House staffer – to allow banks to transfer information IRS directly. But you have to change Russian law.
By July 1, banks may have to choose: to fulfill the Russian law and incur losses or American, breaking Russian law, laments the director ‘s compliance PSB Svetlana Yermolayeva. Legal risks arise due to retention and a 30% tax on income customers who have been recognized by the Americans, explains Yermolayeva, Russian law does not provide for retention of direct customer funds on the grounds set forth in FATCA.
Possible to meet the requirement of bank secrecy, even if not governed by law, according to the manager of another bank : finding American client to get his written consent, but better is directive for the transfer of information to the IRS. Technically it is possible, it is reassuring: system identification and interaction with clients been established in many banks.
In the performance of FATCA banks will face many other problems, warns the head of the group in the field of Compliance KPMG Dmitry Chistov. U.S. demand to disclose the accounts not only U.S. customers, but also the companies of which they are beneficiaries. At the same time under Russian law the beneficiary – the owner of not less than 25 % stake, and on FATCA – 0 or 10 % depending on the type of company, explains Chistov.
To start an independent exchange with the United States on July 1, banks should have until April 25 to register online IRS, obtain an identification code and enter into a contract with the IRS, reminds Chistov. Many from last year started to be registered at your own risk, employee knows Russian bank. “Given the political situation, it is possible that the agreement is not signed, and we can not wait that long – it is necessary to prepare for the execution of FATCA», – says the banker.”
http://www.vedomosti.ru/finance/news/24672711/nakazanie-dlya-bankov?full#cut
FATCA there are two knows;
1.) FATCA would fall under “mirror reciprocity.”
2.) FATCA would fall if it required US Senate ratification.
With respect to point one, I do not understand why countries signed on without a quid pro quo.
Had Canada signed and Keystone been approved, OK I may not agree but at least you got something out of it.
What did the UK get? Cameron got to ride on AF1 and go to a basketball game with the pres.
The rest of the world really needs to take note and respond accordingly. If the rest of the world has the degree of awareness to pick up on this, it will see that:
A. The U.S. is attempting to use an extraterritorial law of dubious validity to;
B. Punish another country for reasons that are NOT related to the original purpose of the dubious law.
Simply incredible.
Of course, citizenship-based taxation creates opportunity, for the U.S., to punish the economies of other nations.
Can you be “part American?” Partly off topic but it is a reinforcement of getting rid of the dual national notion.
I stumbled across the Jewish article which asks, “Can you be half Jewish?”
http://www.reformjudaism.org/blog/2013/10/07/can-person-be-half-jewish
In a way, this is the Master Nationality Rule in that you can be only one.
My father is Roman Catholic, if my mother is Southern Baptist am I “half catholic and half baptist?” Of course not. I may become fully Catholic, Baptist or something else, but a hybrid GM crop? No.
Anyway, back to regular scheduled programming.
Interesting set of circumstances – I recall Putin also recently called for a pull out of US investments and a return of capital to Russia but stopped short of selling US Treasuries. Would be great time for Russia and China to work together against FATCA but that seems unlikely I suppose.
“Russia was going to conclude an agreement last summer but negotiations dragged on. It was decided not to sign an agreement on FATCA but a mutual exchange of information ( i.e., the United States is committed to providing information on Russian taxpayers). Draft agreement reproduces almost U.S. law, although FATCA it is not explicitly mentioned.”
Maybe others who understand this better can explain to me why Russia was allowed to pursue an alternative to FATCA similar to one which already exists between the US and Canada, only Canada is forced to sign a FATCA IGA?
@ bubblebustin
“Maybe others who understand this better can explain to me why Russia was allowed to pursue an alternative to FATCA similar to one which already exists between the US and Canada, only Canada is forced to sign a FATCA IGA?”
Two reasons come to mind, off the top of my head:
1. Canada is a pipsqueak on the world stage and is treated accordingly. Harper thinks he’s a player but he’s only being played.
2. We made our own bed by allowing, even encouraging, dangerous levels of investment in the U.S. economy. For instance, our “Canadian” TD Bank now has more branches in the U.S. than it does in Canada. The retirement plans of millions of our fellow Canadians are rooted in U.S. investments and only the inevitable decline of the U.S. dollar will force a pull-out that should have begun years ago.
I’m sure my fellow Brockers can add many more to this list.
@Deckard1138
I guess Canadian banks had dollar signs in their eyes and never considered that the US might one day become a hostile place to invest money. In fact, a whole lot of people would have never known – but they do now.
“Harper thinks he’s a player but he’s only being played.”
But I saw him on TV last night:
if the Russians are so concerned about the 30% sanctions, why is no one questioning the legality of these?
It blows my mind. They just accept that the US can just legally do that and would rather have their financial institutions sign up with the IRS. The whole thing does not make sense. Why is no one looking into the options that Just Me listed a while ago (choice for the Australian government… and others!)?
Well Russia has a ton of laundered and legit money stored in the biggest tax haven of all the USSA so they are running scared too. Probably there will be a move to isolate the USA by joining China I’m hoping. Either that or war and at this stage I would welcome a war as long as Russia wins it. Russia has never done anything personally to me, The USA has destroyed my life in various ways and I’m sick of them and everything about them. I’d take my chances with Putin.
I ran across this piece on YouTube – it is a European Parliament hearing on FATCA at which, among others, Robert Stack appeared from May of 2013. I have to say that by and large, it seemed a love-in with people falling over themselves to embrace the concept of banding together to stop tax evaders. I don’t think many (or any) of them really understood 10% of the overreach of FATCA on their own citizens. One MP, however, was up in arms. It might be worth reaching out to her with a bit of information if there are any members of this site who could do so from Europe (I believe we have more than a few Europeans posting on this site).
The link is:
https://www.youtube.com/watch?v=zRoU-JNFhr0
The MP’s address (Sophie in’t Veld of Netherlands): sophie.intveld@europarl.europa.eu
She made an impassioned plea about Europe not having sufficiently studied the issue, about the bad precedent of foreign law applying directly inside the EU and the direct impact on European citizens. I didn’t hear a single person mention the issue of double taxation and the US’s solo defence of CBT. It might be worth letting her know, for example, that:
1. There is NO protection under existing US law for data once shipped over to the IRS since they will not have derived it from a tax return;
2. Private data of EU citizens married to US Person will be affected as will that of European small businesses who have a dual-citizen owner with more than 10% (and possibly without the knowledge of the business or the other shareholders); and
3. EU citizens who are not evading ANY tax in the EU may be considered “tax evaders” by the US merely because they OR THEIR PARENTS were born in the US decades earlier even if they have never lived in or earned any money in the US. This CBT is unique to the US and no EU member has any interest in co-operating since these are EU compliant taxpayers and EU earnings being diverted to the US (reciprocity is not possible since no other country taxes on that basis).
4. The fact that FATCA is being imposed by virtue of threats of unilateral expropriation of EU property without compensation (that is the famous 30% of revenue witholding tax) ought to be met with outrage and the threat of retaliatory measures in kind (no country has more investments abroad than the US – every dollar they steal could easily be matched with $2.00 of retaliation: it’s like nuclear war, nobody wins and that’s why you don’t start them).
From her passioned plea before the EU parliament, I’d say that she would be interested in hearing from people on these sorts of issues.
Anne Frank,
We’ve discussed Sophie’s sole pleas here before. She’s in a league of her own and why she does’t have more support is beyond my comprehension.
On the one hand, it’s bizarre that Russia would want to sign a FATCA agreement in the first place, essentially to open up its banking sector to IRS supervision and NSA penetration.
On the other hand, it’s even more bizarre that the US would refuse to sign such an agreement, presumably to have an excuse to levy a 30% automatic deduction on all transfers to Russia, as a financial penalty for Crimea, or whatever other pretext.
This is war. It`s economic warfare.
Could this be the first novel that references FATCA?
Mariella Frostrup talks to Marina Lewycka about her latest book, Various Pets Alive and Dead, a wry look at modern values, which explores the lives and loves of a family whose hippy parents brought their children up in a commune. Whilst their daughter has become a house proud primary school teacher their son Serge is secretly trading derivatives in the aptly named city bank FATCA. Award winning author of A Short History of Tractors in Ukrainian turns her comic eye on the humorous clash of ideologies within one family during the financial crash of 2008.
http://www.bbc.co.uk/programmes/b01d26ln
http://www.penguin.co.uk/static/cs/uk/0/downloadextracts/PT_various_pets.pdf
Vedomosti.ru has another article on FATCA, “Крым по ставке 30%” (Crimea at the rate of 30%), dated April 1, 2014: (software translated)
“Crimea at the rate of 30%
Americans may have decided to strike the Russian banking system: they refuse signing of an agreement on exchange of information on FATCA rules
Dmitry Kazmin
Margarita Papchenkova
01.04.2014
U.S. authorities have de facto ceased negotiations on an agreement on the exchange of tax information on the rules FATCA, a federal official and a person close to the Kremlin told “Vedomosti” “Meanwhile, the U.S. is silent ” – knows another federal official. Clear signals regarding the termination of negotiations were not given, he said, at least through official channels , “But they obviously took a pause in the negotiations.” President’s press secretary, Dmitry Peskov, did not know about the U.S. decision to withdraw from the negotiations.
FATCA – the law on taxation of foreign accounts of U.S. residents. As of July 1, banks and other financial institutions around the world are obliged, by connecting to a US Internal Revenue Service (IRS) system, to inform her of such accounts. Evading sanctions await: first 30 % tax on payments to the bank any passive income from U.S. assets (eg , interest ), and at 2017 – the same levy on income from the sale of securities and even transit payments.
Intergovernmental agreement (draft already prepared MOF) seriously simplifies the execution FATCA: Russian banks have sent information to the Federal Tax Service, and that – to the IRS. If there is no agreement, each Russian bank to sign an agreement with the IRS before July 1. But Russian law forbids banks to send customer data to foreign tax authorities, says Dmitry Chistov of KPMG.
Russia was almost ready to sign the agreement, said three federal officials. The Ministry of Finance last week sent the government a draft directive on signing the agreement with the U.S. on the exchange of information. Even then, a Finance Ministry official said that Washington could delay the signing as an informal sanctions for Crimea .
First Deputy Prime Minister Igor Shuvalov warned that informal sanctions for Crimea may be more dangerous than the official (as they affected only two banks – the bank “Russia” and its sister Sobinbank). Profile government officials negotiating the FATCA, while in contact with the U.S. Treasury, now the final stage, the text discusses knows official financial and economic bloc, but the final word, as in Russia, not in the Ministry of Finance, and for the president’s administration, including the Foreign Ministry.
“Vedomosti” requests to representatives of the Ministry of Finance and the Foreign Ministry were not answered.
“Some Russian banks have already passed the registration procedure in the IRS», – said chairman of the board “MDM Bank ” Oleg Vyugin. If the IRS does not sign an agreement with Russian banks, they will close correspondent accounts in U.S. banks and look for other foreign correspondent banks, he said. “For any bank seizures 30% – a huge loss – says Vyugin . – This can be a shock, because it is unclear how to work through other foreign banks, how to behave with the United States, who will open correspondent accounts of Russian banks. ” After 2017 a particularly painful this problem will be for banks with subordinated loans and loans from foreign banks , as well as for those credit institutions that serve exporters, warns Vyugin . One on one with the U.S. regulator Russian banks would be more difficult to negotiate, especially considering the attitude towards Russia, fears Vyugin : «IRS may consider that you properly account for, and exclude you from the system FATCA».
” Banks do not know what to do, all the slight panic ,” – said a top manager of Russian “daughter” of a large foreign bank. If the U.S. does not want to enter into an agreement with Russia, all the Russian banks is a high risk that separately with each bank IRS will not, says lawyer major Russian bank: at least the Americans want to achieve a situation where the bankers have to break or local laws, or FATCA.
The Government is preparing a fallback government official said: to allow banks to send information directly to IRS . Big gosbankiru known that Americans came out of the negotiations on FATCA, but the solution to this problem is, only amendments to the laws .
Legal risks arise not only for data transmission, but also because of the retention of a 30% tax notices Svetlana Yermolayeva of PSB: Russian law does not provide for retention of direct client funds on the grounds FATCA.
Since U.S. itself is a beneficiary of FATCA, there is still a chance to negotiate, admits Chistov.”
@Polly
“This is war. It’s economic warfare.”
Yes, it really is. Only question now is whether it could spark a “real” war, though the long-term damage from FATCA might be even greater than if bombs and bullets were used instead.
@Innocente
Thanks for the follow-up article – I have a feeling that there will be many more like it. It sure looks like the old cold war battle lines are being dusted-off and repainted with a shiny new coat of FATCA. This is not a good development at all.
Very telling that we can only surmise the reaction of Russians through clumsy Google translations. It would be a cold day in hell before any western press chose to cover the story from that angle – they do a terrible enough job of covering it PERIOD.
This really should serve as a warning to the world. Even if you have signed an IGA for FATCA, the US can threaten to cancel the agreement as a form of sanction against a nation’s financial system to achieve whatever it wants. For those that think the IRS cannot collect levied “penalties” for FBAR and other so-called tax debts, what is to stop them using this form of threat to force other governments to collect from their own citizens?
It looks increasingly likely that FATCA will be used as a financial warfare tool for purposes utterly unrelated to any vestige of tax evasion, it’s so-called “stated purpose”.
Thanks to FATCA, the slow walk-away from the U.S. dollar will soon turn into a stampede. The United States is about to commit economic seppuku.
All it will take is for the first foreign bank to get hit with 30% withholding. The US will not be able to resist showing it off as a trophy. Mass outflows from dollar investment will begin.
Starting with Russian banks, maybe?
What if Russia Dumped U.S. Debt?
http://www.wealthdaily.com/articles/what-if-russia-dumped-us-debt/5083
@ FromTheWilderness
And, ever so predictably, a commenter to that article says, “Screw Putin we have God on our Team we are free.”
What if Russia dumped US debt? Look at what Putin did.
http://www.globalresearch.ca/putin-flushes-the-us-dollar-russias-gold-ruble-payments-system-delinked-from-dollar/5375866
“Alea Iacta Est!” Translation: “The die has been cast” — had to look that up.
“U.S. authorities disrupted signing of the FATCA
Americans may have decided to hit the Russian banking system: they rip signing of an agreement on exchange of information on the rules of FATCA
U.S. authorities have de facto ceased negotiations on an agreement on the exchange of tax information on the rules FATCA, told ” Vedomosti “a federal official and a person close to the Kremlin. ” While the U.S. is silent “- knows another federal official. Clear signals the termination of negotiations they were not given, he said, at least through official channels: ” But they obviously took a pause in the negotiations. ” President’s press secretary, Dmitry Peskov, does not know about the U.S. decision to withdraw from the negotiations.”
http://www.vedomosti.ru/finance/news/24731771/krym-po-stavke-30