As you know, I refused to fill out a W-8BEN for Scotia iTrade. First, I received a letter. Since then, I missed a phone call which I never returned. And now I’ve received at least two e-mails.
This video, with numerous screen shots from the Isaac Brock Society, explains why refusing to fill out bank paperwork increases the compliance cost for the bank, and effectively thwarts efforts of the banks to come into compliance with FATCA regulations.
Congratulations to the Isaac Brock Society!
@Bubblebustin, re false negatives. Indeed. How on earth will they find the accidental American born in his now home country of, say, France. That person has a French passport, lives in France, was born in France. No indicia. Yet maybe has a US passport. Hey, that’s a start! Could start looking for US passports delivered overseas… Time to get those databases mined again. However if no US passport… or passport delivered in the US…
On behalf of the USA and the tax compliance community I would like to applaud Petros decision not to fill out Form W-8BEN.
By not filling out the form (which has nothing to do, by the way, with FATCA), Petros is forcing the bank (as a Qualified Intermediary) to withhold and pay over to the USA taxes on any US-source income Petros might have at the Chapter 3 or non-treaty rates.
In the case of interest this will likely be zero even without the treaty.
In the case of US-souce dividends this will be 30% rather than the 15% treaty rate.
What extra burden has Petros place on his bank?
None whatsoever. His account is simply included in a non-treaty eligible category and US-source income will be treated accordingly.
In meantime Petros loses the time value of the excess 15% withheld on his US-source dividends (and possibly other types of US-source income).
He can claim no more than the 15% (or lower) treaty rate for purposes of computing his Canadian foreign tax credit.
If he wants any of the excess amounts withheld he will have to file a US non-resident tax return at the end of every calendar year to claim the refund. Assuming he does that himself then he loses no more than time. If he pays someone to do it for him (assuming the refund amount is large enough to justify the cost), the tax compliance community wins.
So who loses in this scenario?
Petros.
Only Petros.
Everybody else either wins or is unaffected.
Like many people at IBS Petros does not understand the Qualified Intermediary regime (which has been in effect worldwide since about 2002) and the benefits it offers to all parties – especially NRAs with US source income from portfolios managed by their local foreign bank.
Technically, the QI regime continues but it will be effectively subsumed into the more comprehensive FATCA regime. One of the reasons FATCA met so little real resistance from foreign banks was because about 7,000 of them worldwide already had established the IT prerequisites for meeting the QI requirements. FATCA expenses thus became only an incremental cost and gave them a competitive advantage over all other financial institutions to which the QI regime did not apply.
TodundSteuer, Thanks for your comment. I appreciate it. I suppose what is not appreciated however is that I never need to fill out a W-8BEN because I don’t invest in US investments at Scotia iTrade. So the biggest loss to me is–My disinvestment from the United States–how exactly does that hurt me again? Meanwhile Scotia iTrade is making a fruitless effort to get me to fill out the form. What I wonder is if the only concern for them is that I have to pay 15% more withholding taxes to the US (which I could claim as a tax credit in my Canadian taxes, and so the real loser would be the CRA and the Canadian government, that is, if I had US portfolio investments).
FATCA and QI are unrelated, and so Haydon Perryman, who has suggested that W8-BEN compliance is necessary by the FFI in order to show FATCA compliance, is the one who is confusing issues. Under the Canadian IGA, I wonder if Scotia iTrade could continue to operate as a US FATCA compliant bank if they could not show a good faith effort to get their clients to fill out the W8-BENs or the W9s? Evidently, Perryman thinks a good faith effort is necessary. But of course that is only QI which has been in place since 2002, and that is why I was able to open this account without ever filling a W8-BEN or W9, a few years ago. No FATCA has changed nothing. Never mind. Nothing to see here folks. You can all go home now and dutifully fill our your W8-BENs, as though you lived in the United States. IRS=International Revenue Service.
@TodundSteuer , “Like many people at IBS Petros does not understand the Qualified Intermediary regime”
My friend, I think you are mistaken on that point.
Like many people at IBS, all US investment products including bonds, funds, stocks have already been divested. Why feed the beast, it will bite you in the end.
The QI program is meaningless to me and my family, we own nothing investment related to the US. At such time that non-US investments were about to become US investments because of what is in essence hostile US takeovers, the investment has been sold before US acquisition.
If you were a long time IBS reader you would know that Petros is an avid investor who owns nothing US investment related.
Individuals can build outstanding and diversified portfolios for retirement by completely avoiding US companies and products. Many have done just that.
You can also have wonderful vacations entirely avoiding the US. Want to go to Disney? You do not need California or Florida anymore. White sand beaches and palm trees? The Med is beautiful along with the Caribbean. Skiing is best in Canada and in the Alps. City night life? Montreal, London, Paris, Tokyo, Rome, Mexico City………….
The last vestige drawing ex and former pats to the US is old relatives and though it will be sad when they pass, the need to ever do anything with the US will close.
Now while those travel dollars and stock bond purchases will not affect the US macroeconomy, the loss of overseas goodwill ambassadors will hurt over time.
@Steven: Kudos to you — an inspiration to me!
I too have many unreportable accounts, and was wondering, when my bank finds me, whether I should throw a tantrum and ask what they are reporting to the local government per IGA, and also that they respect only the IGA and refrain from reporting more than necessary, i.e. not report accounts that they don’t need to (although, of course, these are reported on FBARs).
A Private Banker I have talked to in Belgium say they always tell their clients what info they transmit to Belgium. They have been preparing their clients for many years. But then again I imagine the financial sophistication of these people is magnitudes greater than mine (and my bank). He did say he thought banks would be anxious to report as much as they could, being quite scared if they have business in the US.
The paradox however is that I will file my FBARs.
Anyone know what happens when you file an FBAR but your bank doesn’t know you are a US person? Will the IRS walk it back up to the bank and ask why they didn’t do a report? Note that I have very low (even negative) value accounts, barely reporting threshold because of an occasional blip over $10,000. Which I could have prevented had I been aware. And thus remained under the reporting threshold.
I do have a small mutual fund, wonder what to do about that. Got a standard fine print letter saying I should call them if I’m a US person.
George, thanks for that comment. It’s all true, as my comment must have arrived as you were hitting send.
Now that my father is gone, I just have brothers and sisters, who could chose to visit me–or we can meet in a third country. But I have no necessity to see the US and I will wait until 2018, most likely, before daring to try to enter the country–though I must admit, I have little desire to do so.
I’m very grateful for all the mentions on this website.
If I may, Chapter 3 and Chapter 4 (QI and FATCA) are related. Also, the W8 series serve both Chapter 3 and Chapter 4.
Personally, I don’t see any advantage to the customer in not completing a W8. It is a personal opinion, but I would encourage anyone (who is not a American) to fill out W8 (if requested). The requestor of the W8 will have no choice but to treat the account holder as ‘recalcitrant’ if no W8 is supplied.
That said, I fully agree that ‘recalcitrance’ has shaper teeth if there is US FDAP to be withheld.
In any event, this debate is only possible because of the Isaac Brock Society. Congratulations are in order.
Recalcitrant account will have 30% of their US FDAP withheld, also their account will be reported to the IRS, albeit, in aggregate.
Also, every OECD country (apart from the US) has signed up to Automatic Exchange of Information. This means self certification (be it W8s or via something else) are going to become new norm in the near future.
Further, when I refer to “Good faith” I am indeed talking about FATCA (not QI) in line with notice 2014-33.
@Fred
I was wondering that, too. Under the IGAs, things like the British Individual Savings Account FFIs do not have to report ISAs under the IGA. My tax preparer, like Phil Hogden, does not think that the cash ISA is a trust, but I am wary of calling it an ISA on the FBAR just in case. I would imagine that somebody people might more than $50,000 cash in a consolidated one built up over a few years. What happens when someone reports one of those on an FBAR and the bank doesn’t report it?
@Haydon Perryman
Wow! Great to see you on here. We are honoured.
@Haydon Perryman: …but I would encourage anyone (who is not a American) to fill out W8 (if requested).
A W-8BEN has to be signed “under penalties of perjury”. And perjury in a foreign country, no less. It is easy to understand why non-Americans with no connection to the US (and no wish for any) might feel intimidated by this, and be unwilling to acquiesce.
Yes, this form never reaches the IRS, but (generally) stays with the FFI. Even so, the US and the IRS have done themselves no favours at all by rolling out this form in their usual autocratic manner. (And that’s just the W-8BEN. The W-8BEN-E is a lot worse.)
My suspicion is that banks that design their own “W8 equivalent” will have a much easier time getting non-Americans to sign on to it. Particularly if they omit the threats of penalties and perjury so beloved of the IRS.
https://haydonperryman.files.wordpress.com/2014/11/w8-equivalents-v8.docx
@publius Thank you. That is very kind.
@Watcher Check out the link above. You will see I fully agree with you.
@TodundSteuer
Here’s another way of looking at it, when the American colonists threw British Tea into Boston Harbor, they were actually throwing Tea that was subsidized and cost them less than the Tea they were buying elsewhere. In short, the Tea was thrown overboard as a matter of principle.
The point being is that refusing to fill in the W-8 form may cause a person to lose a “tax discount” of sort, but that person made a conscious choice not to obey a stupid rule that they felt offended by.
Like Petros, I too will refuse to fill in a W-8 form and I will also refuse to invest in anything whatsoever that benefits my former Homeland, the USSA.
Amazing video! Thanks, Petros. As the U.S. economic empire collapses, when will their politicians realize that their own ill-considered FATCA is accelerating its fall? It would be hilarious as a Monty Python sketch, like the “Crimson Permanent Assurance”, but in reality it is just sad how insane the whole thing is — all the tax and compliance people trying to carry on doing their jobs while the US tax system is sailing off a cliff and dragging the rest of the world with it. A sane system would avoid spending trillions of dollars around the world on FATCA compliance and spend it on providing the necessities of life to poor people instead.
@Haydon, thank you for the link and we can see general agreement. In the document there is a section that is not correct. I have noted with INCORRECT
—-
If the answer to any of the below (2a to 2g inclusive) is “Yes” then under FATCA the account holder is American i.e. the correct form would be a W9.
a. Have you or have you ever had a USA Green Card? (INCORRECT)
b. Are you a Citizen or Resident of the USA?
c. Do you have a parent who is a US Citizen? (INCORRECT)
d. Were you born in the United States, Puerto Rico, Guam or the US Virgin Islands? (INCORRECT)
______
More precise/correct language would be;
a. Have you or have you ever had a USA Green Card that has not been turned in and invalidated by the US State Department?
(A former green card holder is not a US Person if the green card was turned in properly)
c. Were you born outside the US by a parent who is a US Citizen and your citizenship status has been determined by the US State Department?
(Having a US Parent is NOT automatic US Citizenship by any stretch. The parent must have lived there for a period that changed over the years, it matters in and out of marriage. Unless the state department has ruled, they are not a USC and one of the FAM manuals states that)
d. Were you born in the United States, Puerto Rico, Guam or the US Virgin Islands and have not relinquished your US Citizenship?
(A person born in the US who has relinquished is no longer a USC.)
___
@Haydon, the best guidance I have seen with British FIs is simply referring the person to their own personal legal counsel!
Lets suppose a customer presents an EU License to open an account and it says USA for place of birth. That would initially indicate US Citizen and without a non US Passport you must move forward with a W9.
But what if that person presented an Irish Passport showing a US Place of birth. The Irish passport shows you are halfway over the hurdle as it indicates a possible relinquishment.
Seeing the US Place of birth on an Irish passport I would then ask;
1.) I see you were born in the USA, are you a US Citizen? If YES, hand them a W9.
2.) You said that you are not a US Citizen. Did you relinquish your US Citizenship when you became an Irish Citizen or did you renounce your US Citizenship.
If person says they renounced, I would ask for a CLN.
If person says they relinquished when they became Irish, I would ask for the Irish Certificate of Naturalisation/Registration. That would be the reasonable explanation having lost USC which is covered under 8 US Code.
@George. Great points. I am suitably corrected.
@Haydon, here is the guidelines now being used throughout the Netherlands.
http://isaacbrocksociety.ca/wp-content/uploads/2014/11/ENG_FATCA-Guidance-Dutch-self-certification-form-natural-persons.pdf
This is more soft touch and gets to the core issue of self certification.
In the UK, you are likely aware that competing thoughts are developing reference compliance. There are FIs that are not asking place of birth and seeing if indica is then presented. Then there are FIs who are asking place of birth never to be heard from again so a person can dispute their imputed USness.
One of the complaints and avenues of approach with ADCS is that even asking place of birth is discriminatory. The IGA does not require it, rather it is a passive attitude if US place of birth then develops. If it shows, then you ask. If CLN alone was mandatory, reasonable explanation would not have been written into IGAs. Further the language in IGAs evolved and it changed from renouncing to relinquishing.
Post July, I have actually asked at some UK FIs why they were not specifically asking for place of birth and instead were passive if it came up on say a passport. The response that I got was that it could be viewed as discriminatory to ask for national origin!! They were afraid of lawsuits.
Some of the venom could be taken out of this if the compliance industry followed the law exactly as written and did not become ultra vires. By way of example the CRA in Canada on its websites states plainly that FIs do not need to ask place of birth yet there are FIs in Canada asking the question.
As others have said, thank you for at least listening……
@George. More great points. Thank you. When I get a moment I will see what the CRS says about place of birth. Yes – I’m always listening.
@George. One problem we have with these regulations in the UK is that there are a great many FATCA fundamentalists here, a term I use to describe people who have a very US centric view of the regs, many of whom have not read any Inter Governmental Agreement. The FF almost seem to regard the UK as the USA’s 51st state. In the UK we seem to have two camps. FFs and Inter Governmental Agreement interpretations. Very few understand both the U.S. Treasury of FATCA as well as the IGAs.
For example, the UK Inter Governmental Agreement makes no mention of the Responsible Officer yet the FF insist that the concept of the RO having personal liability applies in the UK.
I could go on forever – I forgot, I do go on forever!
@George I had a look at the CRS. Place of birth is there.
Canada has signed up to the Automatic Exchange of Information.
I’m open to a counter argument but I think Place of Birth is here to say.
@Haydon
I am aware of Place of Birth being in CRS but I will also note CRS still has to be approved by the Parliament of Canada at some point in the future prior to 2018(but in all likelihood after the next election in fall of 2015). I think the possibility must be considered that a different Canadian government after next fall might implement CRS without place of birth. If they did so what will other countries or the OECD really do about it. My guess is next to nothing.
@George: a. Have you or have you ever had a USA Green Card? (INCORRECT)
Right. If my UK bank ever asks me this without the “that has not been turned in” rider I will answer “no”. I did have a green card, but surrendered it several years ago explicitly so that I would no longer have to deal with the US and the execrable IRS. No UK bank mis-applying FATCA or the (dubious) UK FATCA IGA is going to drag me back in!
@Watcher. George is right. If a green card has been turned in and invalidated by the US state department, then the Green Card, on its own, does not make a “Specified US person”.
Both US Treasury FATCA and the IGAs follow this path.
@Tim. Regarding Place of Birth, I hear you. Whilst the Standard has been released, you are right, every jurisdiction will have to implement their own local laws.
As if to illustrate your point, the UK has issued its own guidance on the CRS (I don’t know if Canada has) and the UK has included some products as exempt. These exempt products are the same as those in Annex II of the IGA.
The CRS was not ‘supposed’ to include these exemptions (and may not) but this proves your point, in that, basically, it is up to each jurisdiction as to how it will comply (if indeed it chooses to comply).
I watched Canada’s debate on the IGA, such was the quality of opposition, I believed Canada might not sign an IGA. Alas, I was wrong.
My guess is that PoB will remain but I entirely understand that others will see this differently.
Any attempt to comply with FATCA the IGAs and the CRS is interpretative.
@Haydon Perryman
What about those who can fly under the radar? There’s got to be a lot of untapped revenue for the IRS there.
@Bubblebustin Agreed. (Sorry to keep agreeing with everyone here but, it seems to me, you are all well informed.)
FATCA does not demand the same level of CDD on individuals in the US who are not US citizens. Also, the USA is the only member of the OECD not to have signed up to the AEoI. If a non-US citizen had privacy as their #1 concern they might choose to invest in the USA.
Other countries have privacy, of course, but once you factor in macro-economic risk and political risk the US looks “good”.
Far be it from me to say that the hot money will flow to the US.
Also, IMO if the US wanted the IRS to have extra revenue, then they could have recouped a lot from enforcing Chapter 3. That could have brought in WAY more $ than those high profile fines.
I know I do go on about this, but how can any initiative like FATCA’s ever to have any acceptable degree of success if so many of the intended targets are allowed to go undetected? It’s like screening for Ebola and eliminating the asymptomatic! That is unless of course the US realizes that those who fly under FATCA’s radar are non-residents minnows anyway. The banks won’t give a rat’s behind about those who go undetected as they can say they’ve done what’s required of them. That still doesn’t change the fact that there’s a gross failure and inequity here, however. You’d think on that basis alone, someone would have already driven a stake through FATCA’s heart.