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
An English language article in today’s RiaNovosti called “US Halts Talks on Financial Data Sharing Agreement with Russia – Report”, which uses Vedomosti as its source:
http://en.ria.ru/business/20140401/188961892/US-Halts-Talks-on-Financial-Data-Sharing-Agreementwith.html
@Deckard: Reuters’ reporter Patrick Temple-West, who covers FATCA, seems to rely heavily on US Treasury’s input for his articles. Treasury and Robert Stack may boast about the IGA signings but do not seem to mention the failures, like Russia, and the other 220 countries that have not signed a FATCA IGA.
@Jim Jatras: Russia’s proposal to the US required reciprocity, an element that the US does not have the authority to agree to. Russia’s negotiators certainly knew that the US could not agree to this and so may have intentionally scuttled the IGA by requiring it. Although only a “regional power” according to Obama, Russia attempted to negotiate an agreement between equals.
@Innocente
Most other countries who have signed an IGA also “require” reciprocity and the USA happily signed on (with their fingers crossed behind their backs). Why should the USA be reluctant to sign in the case of Russia, then? It appears that the USA fears no consequences from lying to other “partners”, but take Russia a bit more seriously.
This just in from Voice of Russia:
Russian Finance Minister wants to discuss FATCA agreement with US during visit to Washington
The US is refusing to sign a FATCA IGA with Russia as a form of “sanction”?
That is rich.
@notamused:
“Most other countries who have signed an IGA also “require” reciprocity and the USA happily signed on (with their fingers crossed behind their backs).”
The reciprocity that US Treasury is offering in the IGA reads like this (from IGA with Germany):
“1. Reciprocity.
The Government of the United States acknowledges the need to achieve equivalent levels of reciprocal automatic information exchange with the Federal Republic of Germany. The Government of the United States is committed to further improve transparency and enhance the exchange relationship with the Federal Republic of Germany by pursuing the adoption of regulations and advocating and supporting relevant legislation to achieve such equivalent levels of reciprocal automatic exchange.”
The US promises to pursue reciprocity but doesn’t guarantee it.
” Why should the USA be reluctant to sign in the case of Russia, then?”
I’m assuming that the IGA proposed by Russia requires reciprocity in writing, i.e., the US can’t weasel out of it by claiming later that it couldn’t get the enabling legislation through Congress.
@Innocente,
“I’m assuming that the IGA proposed by Russia requires reciprocity in writing, i.e., the US can’t weasel out of it by claiming later that it couldn’t get the enabling legislation through Congress”
This is what every country should have done. In a sense, this is why I think the New Zealand approach is a good one. First try to modify your laws, then sign something that you can honor.
Since when do extortion victims negotiate terms? The US will show Russia for not negotiating in good faith like all of the other poodles have!
Could be that this particular poodle has nuclear weapons and has them aimed at the heartland of the USA?
It think we can now safely postulate that the US pulling out from the FATCA negotiations is intended to lay the foundation (or at least scare the bear) for a monetary sanction (30% withholding of US source funds and possible denial of correspondent banking relationships/USD accounts). Obama does not shy away from using taxes as a weapon (blunt instrument of not). For US Persons – Obama is a nightmare. But destroying 7 million or 10 million US Persons is now clearly not the sole objective of FATCA. The Russian situation is a clear example of how it can/is being used to control other countries behavior and hurt other countries economically unless they tow the US line.
If I were the Russians, I would have already gotten out of all US investments by now.
@Samuel Adams
A sanction is useless without something to sanction, isn’t it? It is in fact the US that would be isolating itself if it was to start playing too fast and dirty with FATCA. Right now it’s in the best economic interest of many countries to capitulate to FATCA, but at a certain point even these benefits aren’t worth being exposed to an ever more threatening US government.
@Innocente
There are more binding statements than the standard waffling from the US elsewhere (If not in the IGA, then in the German legislation text). I’ve posted it here previously but don’t have time to look for it again just now.
The Treasury just expanded the list of jurisdictions “treated as having an intergovernmental agreement in effect”, by adding a list of countries that have “reached agreements in substance” but not yet signed them. It includes more European countries, Australia, New Zealand, Brazil, South Africa, South Korea, Qatar and a few small territories. The grand total is now 46 jurisdictions. However, still no Russia, China or India.
Disappointing to see Brazil on the list. But no India, Indonesia, Turkey or Saudi Arabia, all countries in the top 20 of world GDP.
There are very few undeveloped countries on this list, so it seems those countries will just be thrown to the FATCA wolves and left to fend for themselves against the 544 pages of regulations.
@Hogwarts, I didn’t think Brazil would accept it either. All these countries combined, plus the US, represent 66% of the world GDP.
re: Treasury. What a joke! How typical for the USA, just making up the rules as they go along. Congratulations to those deemed “FATCA compliant”. Welcome to the “good ole boys” club.
If US Treasury were a business, it would have run afoul of revenue recognition rules by recognizing that IGAs are valid (sold) before they have been signed.
“Investopedia explains ‘Revenue Recognition’
For most businesses, income is recognized as revenue whenever the company delivers or performs its product or service and receives payment for it.
Companies can sometimes play around with revenue recognition to make their financial figures look better. For example, if XYZ Corp. wants to hide the fact that it is having a bad year in sales, it may choose to recognize income that has not yet been collected as revenue in order to boost its sales revenue for the year.”
With this slight of hand tactic, Treasury doubled the numbered of “FATCA compliant” countries. It fits in well with other maneuvers by Robert Stack but it shows desperation.
US Threatens Russia Over Petrodollar-Busting Deal
http://www.zerohedge.com/news/2014-04-04/us-threatens-russia-sanctions-over-petrodollar-busting-deal
FATCA is a clear example of how the US abuses its dollar reserve currency status. Lets hope the Russians play hardball and Putin uses his judo to help the Americans self-inflict damage upon their own dollar monopoly. I wouldn’t underestimate the Russian’s ability to play a good game of chess.
As Shadow Raider pointed out, its interesting to note, that although Brazil caved into FATCA, Russia, China and India have not fallen — at least not yet. But we’ll see. Russia makes a lot of rhetoric about wanting to sign up to FATCA, but still no deal. Perhaps the principle of reciprocity really does matter to the Russians, as well as the Chinese and the Indians.
I just read that Europe wants to create its own internet so that the NSA cannot spy on them anymore. And America is very upset about it because they want to keep that monopoly in the tech field. So they are once again threatening with the bilateral trade agreements.
All these threats.
It also said that Russia wants to create its own credit card companies.
America seems to be threatening itself out of pole position?
Russia wants to force US banks to comply with the Russian version of FATCA:
“At the same time, the Finance Ministry is drafting an analogous law that would oblige foreign banks to share information about Russian account holders. This initiative would also require intergovernmental agreements, but it is not clear whether Moscow will have a similar ability to bludgeon foreign institutions into complying. The Americans are acting from a position of strength, as a levy on dollar transactions would be a blow to any bank, said Alexander Zakharov of legal firm Paragon Advice Group. But Russia does not have such a trump card, he added.”
http://www.themoscowtimes.com/business/article/russia-accelerates-legislation-to-avoid-fines-as-fatca-talks-stall/497796.html
@Swisspinoy…
Guess they want to join Dragnet Nation…
bit.ly/Oq0GN4
if that link doesn’t work…
http://billmoyers.com/episode/no-escaping-dragnet-nation/
@Just Me, America enjoys being a dragenet nation when it is the only one doing so. With Russia following the American lead on this, the US government will probably get upset and display its hypocricy on the matter.
A Vedomosti.ru article confirming that the US has suspended FATCA discussions with Russia:
http://www.vedomosti.ru/finance/news/25155151/ssha-priznali-priostanovku-peregovorov-po-fatca-s-rossiej?full#cut
Software translation:
“U.S. confirmed the suspension of talks with Russia on FATCA
This is consistent with the general approach to the U.S. bilateral relations with Russia , the U.S. Treasury explained
Margarita Papchenkova
Vedomosti.ru
10.04.2014
“In accordance with our general approach to bilateral relations with Russia, U.S. currently suspended negotiations with Russia on FATCA agreement», – said U.S. Treasury in response to a request from “Vedomosti”. Asked when negotiations can resume and what actions it should take for Russia, while the representative of the Ministry of Finance did not respond .
FATCA – U.S. law requiring banks and financial institutions around the world to inform the U.S. Internal Revenue Service (IRS) on the accounts of U.S. residents. If a bank does not join the system before July 1, FATCA , the U.S. to impose sanctions against it : with payment in his favor will be charged 30 % tax – at first only with passive income from U.S. assets (eg , interest ), and with 2017 – income from the sale of securities and even transit payments . To make it easier for banks, the U.S. also offered a compromise: an agreement not with the banks and their states, and then send the information banks are not directly in the U.S. and forwarded through the local tax . 25 countries have already signed such agreements , a similar agreement was ready and Russia . But at the last moment , when the Russian government is preparing for the final negotiations , the U.S. side has decided them to slow down , told “Vedomosti” high-ranking government officials .
U.S. authorities disrupted signing of the FATCA
U.S. authorities disrupted signing of the FATCA
Americans may have decided to hit the Russian banking system as a punishment for the Crimea …
Finance Minister Anton Siluanov can meet with his counterpart from the U.S. Treasury on April 9-11 ( ie, either today or tomorrow , perhaps meeting yesterday has already taken place behind closed doors ) . There is hope that we manage to agree on FATCA, Siluanov said earlier . Last week, the U.S. hinted about his position : published a list of countries which have already agreed to sign an agreement in the near future (such country will be spared from sanctions until 2015 ) – Russia was not in it .
For the U.S., the failure of negotiations on FATCA – is itself ready to sanction against Russia in the history of the Crimea , federal officials warned in early March. This sanction can paralyze many calculations dollar banks : avoid the penalty tax , opening a correspondent account in a European bank fail, because a tax charge financial institutions not only the U.S. , but all the countries – participants of FATCA. At the same time many banks will be difficult to administer tax, rearranging system specifically for Russia , and they just close the correspondent account , experienced bankers .
Now Russian banks have cmogut avoid sanctions if they themselves will be registered on the site before May 5, IRS and receive an identification number (GIIN) – July 1, this number should be shown to all counterparties – parties FATCA, that they do not withhold taxes . Some bankers and officials feared that once the U.S. does not want to cooperate with Russia , they may also abandon the work with its banks. The representative of the U.S. Treasury has not confirmed these fears : “The banks of countries which do not have an agreement must sign an individual contract with the IRS».
But for Russia, such as the way out is not the best – it makes its own laws for the sake of change requirements FATCA. Now , according to the law on personal data and banking secrecy , Russian banks can not send data on the accounts of foreign tax authorities without the consent of clients; nor could they withhold the tax from customers who thought the Americans on grounds prescribed by law FATCA, and close accounts with those who did not wish to reveal. Banks not to put a stark choice – to fulfill the American or Russian law , the Ministry of Finance in urgent mode prepared amendments to the law on ” Banks and Banking”. They allow banks to transfer information to the tax authorities of the countries mentioned in the list of the Ministry of Finance , and close accounts , but do not charge a 30 % tax from customers , recognized by the Americans – is a right still denied, a federal official says . If Russian banks will not withhold tax , there is a risk that they will still fall under sanctions banks , bankers fear . Ministry of Finance promises to later deal with this issue knows federal official , and now time is running out : if to register all at once , the law is a bit involved – you can not make it with the first part .
It should not look like a performance of American law , emphasizes another official : the tax authorities of other countries will also need to send us the information from their banks , with them will be signed on the automatic exchange of information. “At least , it should now declare ,” – he explained.
Many banks since the beginning of spring at your own risk logged IRS, others are still waiting for the end of negotiations. Many did not believe that the U.S. will go to their stall – after agreement is beneficial primarily by Americans. «FATCA – Unified tax information , which only works without any exemptions and exceptions – why Americans create in Russia a tax haven ? ” – Wondered Dmitry Chistov of KPMG. The Ministry of Finance is undertaking heroic efforts to save the banks from sanctions FATCA, but the key legal issues until his amendment is not allowed , so the individual connection to the system of Russian banks FATCA will not be as simple as it seems now, warns Chistov.”
Today’s RiaNovosti has an article in English on the suspended FATCA negotiations between Russia and the Obama administration. Easier to read than the above translation:
http://en.ria.ru/world/20140411/189163365/Russian-Finance-Minister-Concerned-With-Impasse-in-US-FATCA.html