From Accounting Today, Michael Cohn reports that the IRS Issues FATCA Guidance on Reporting Interest Paid to non resident Aliens
The Internal Revenue Service has issued final regulations and guidance on reporting interest paid to nonresident aliens, along with a revenue procedure listing the countries with which the U.S. has a bilateral exchange of information agreement.
So, the speculation that DATCA would not survive might be pre-mature.
The last brick in the foundation of the global Fatca (GATCA) is being cemented in place.
FATCA begets DATCA begets GATCA
I have posted this response. You all are welcome to join in..
Well Michael, I see that DATCA is still not dead. Will be interested to see what the Congressman like Rubio,Boustany,Ron Paul,and the entire Florida delegation that were opposed to this will do. Do I hear “nothing”?
Obviously their letters of protest have had no effect on the IRS or the administration.
As we know, the IRS needs this to make the FATCA reciprocal Tax exchange regime work! In their statements now they are no longer hiding the objective as they were last year. They make it clear that it key to their strategy to overcome FATCA opposition around the world. A global FATCA is being created, and you are one of first and few to know. 🙂
@ Just Me
That just sounds like a time bomb resolution. When the fuse hits 6% it goes off. In the meantime FATCA is still on track isn’t it? In the end there could still be FATCA because some countries grasped at a DATCA straw which the USA really doesn’t want or intend to produce. (It can make up any number it pleases for unemployment.) So those precious foreigner owned US bank deposits stay protected but not US person owned foreign bank deposits. US banks are happy; foreign banks not so much. Silly countries thinking there is ever going to be a real reciprocity with the USA.
@Tim…
Thanks for the roll call.
Time to start vote counting in the Senate and see if there are any that we could target for letters.
One thing we know for sure, there isn’t a rule, statute or regulation written that there isn’t a work around, so your non bearing interest account makes sense. With as little interest as being paid these days, it is almost like who cares if it is zero or .2%, if it is protected from disclosure. Those 20 basis points are like insurance, in this market.
@Tim…
BTW, having Debbie Wasserman Schultz (FL) voting this way (which doesn’t surprise me as she signed the letter to Obama in opposition to DATCA) , brings a strong voice in the Democratic caucus that some Senators might listen to. She a Leader and is Chair of the Democratic National Committee. That is a good platform for advocacy. Also she is a regular on the Rachel Maddow show and other liberal leaning programs, so having her advocate for this position doesn’t hurt our cause at all!
@Em…
Well, 6% unemployment rate is a long way away, and by then maybe there will be enough turn over in the House and Senate to be sure FATCA dies, so I will take the ticking time bomb solution for now, we we could get it.
Also this argument fits well into the “fragile economy” narrative about not letting the income tax rates rise for the middle America right now which are due to expire at the end of the year. The same fragile economic situation applies there as it does to DATCA. We need a stronger economy before we start adding things that take the steam out of the economy, and capital flight right now would be as bad or worse then tax increases, using the Dems / Obama’s own arguments. At least that is the political argument I would be making.
@ Just Me
You are right about 6% unemployment being a long way off. (Shadow Stats has current unemployment much higher than the official percentage — and rising.) However, does no DATCA really lead to no FATCA? Or will countries thinking they are going to get some kind of reciprocity with the USA sometime off in the future just use that as their excuse for going along to get along, FATCA wise?
@Em,
Well, it may not directly kill FATCA, but it throws a major wrench into a key tactical tool of the IRS which was designed to leverage compliance out of Governments. If they don’t get the governments to go along, (because of the DATCA reciprocity promise) it seems to me that it makes the FFI direct reporting to the IRS even more onerous and unpopular since so many FFIs were hoping that the IGAs would relieve their burden. Without DATCA the burden level stays high. So, anything that makes FATCA more difficult is good for us!
@ Just Me
Okay I like monkey wrenches in this case. Fingers crossed, this will work out.
(not many people really want advice, but…) Just an editorial comment—the nicknames DATCA and GATCA are really only understood in this Isaac Brock forum—-the rest of the world relates to its own original terms.
One point not mentioned yet, is that, if a US citizen living abroad has US bank accounts, the interest in the US bank would be taxable only in the foreign country where the person resides. But it would be nearly impossible to get the US bank to stop withholding or equally difficult to get that interest tax withholding to be refunded from the US tax declaration.
DATCA is about penalizing people. There is nothing in the law or tax systems about helping such people to report correctly and to be credited correctly. It affirms that the current administration is in power to punish its citizens rather than to make things easier to “be compliant”.
Repatriating foreign earnings brings negative returns.
For a US citizen living overseas, the insane worksheets for qualified dividends and foreign exclusions/credits, requires a $1500 US accountant each year. Combine the problems above and the risks of being non-compliant in your country of residence. This means that it is ridiculously expensive for any of the 6.3 million US citizens abroad to invest their money in a US bank.
Removing money from US investments will yield an immediate $1500 profit which will more than payback any transfer fees and exchange losses.
@Mark Twain…
I appreciate that editorial comment. Understand that it would not be something that the average populace would know about, and the rest of the world really does not have an acronym to describe it. Most Americans of course don’t know what FATCA or FBAR is. It is just FWhat? if there is any response at all.
DATCA was just my short hand way to separate out these unilateral IRS regulations on U.S. Banks which really are not part of FATCA legislation, but rather an unintended domestic consequence of Congressional Statutes. They did not plan on that, when they passed FATCA.
This gets confused by some journalist when they write about FATCA and they just act like these are two sides of the same coin, which it sort of is, but different. When I used it in a more public forum, I usually write out whatever the media source calls it, and then describe it as the domestic version of FATCA, or (DATCA) to distinguish the action. It was not legislated by Congress in FATCA.
Thanks for your other comments which are good ones. Especially like the one about removing money from US investments being viewed as a $1,500 profit. Kinda like the best interest rate investment a person can make, with a guaranteed return, is paying off your credit card debt if you are silly enough to carry some! 🙂
Don’t you just love that word—“compliant”?
It is such a wonderful synonym to “succumb”
@Mark Twain
A whimper dog rolling over on its back comes to mind! 🙂
Victoria does a very nice job on her blog with the narrative called:
FATCA: Backpedaling on Reciprocity
“The story continues and it just gets better and better.” Indeed it does, Victoria, a very readable account for those who don’t follow the story like we do!
Also, more on FATCA Fallout and the DATCA story posted recently here.
@Just Me and Victoria: Here the saga continues: FATCA Reciprocity May Cause Delays.
DATCA may not be dead yet, but it is struggling to survive. With such a fuss being kicked up about providing information to five countries which are allies of US, what’s going to happen if Russia, China or India decide they too want reciprocity.
@Blaze..
The only way I could read that article, was to copy and paste the headline into google news, but that works. I have been seeing this article on Twitter meaning to read this, so thanks for sending the headline.
New Miami Herald story about DATCA and it’s impacts on the Florida Banking Association. Still no mention of FATCA and how it begat this leverage tool, so posted another comment and emailed it also to the journalist writing the story.
Florida bankers spread the word about a new IRS rule
Read more here: http://www.miamiherald.com/2012/09/02/2982225/florida-bankers-spread-the-word.html#storylink=cpy#storylink=cpy
Jatras has excellent analysis on this thread here
Just doing some reviewing of stories on PRM’s MarketPlace Radio, and discovered a story I missed back in April.
It was titled: Mexicans worried about disclosure rules for U.S. banks1
Even though it is WAY late, I decided to post a comment. Market Place has yet to run a story with FATCA in the title or the story text, that I have seen. My strategy is to be sure that FATCA gets mentioned in appropriate articles, so when you search FATCA, those comments come up. Does it make any difference? Who knows? Probably not, but no comment is certain failure, so might as well post when I can!
Here is what I posted:
I am preserving this commentary from the Miami Herald, as previous links on dueling editorials have disappeared.
New IRS rule scares foreign depositors
BY ALEX SANCHEZASANCHEZ@FLORIDABANKERS.COM
Florida banks are rightly alarmed over a new IRS reporting requirement because it involves losing job-creating capital that banks lend to small businesses in this state and throughout our country.
Today, our nation finds itself scrambling to create jobs and attempting to recover from a double-dip recession, making this IRS rule the latest example in a classic case of the wrong issue at the wrong time. Not only does the regulation overturn 90 years of policy, but it stands to drive large amounts of capital out of America, harming U.S. financial markets in the process.
Foreign money makes up 20 percent to 30 percent of all deposits in South Florida, and the U.S. Commerce Department estimates foreigners have $10.6 trillion passively invested nationwide. Foreign depositors, fearful of the life-or-death consequences associated with the release of this sensitive information being shared with corrupt governments like Hugo Chávez’s Venezuela, are already considering moving money out of America’s financial institutions. Such a mass withdrawal would leave many banks unable to lend.
Suggesting this provision would strengthen our economy is bewildering as it will do just the opposite. The Guidance on Reporting Interest Paid to Nonresident Aliens is a classic example of “trust us” regulation, failing to provide set standards on what constitutes adequate confidentiality safeguards or how the Department will assess which countries are eligible for “automatic exchanges.”
A 2004 study by the Mercatus Center at George Mason University estimated that a similar proposal offered by the Clinton administration would have driven $88 billion from U.S. financial institutions. Given the current state of the economy coupled with the broader scope of the new regulation. This will be far more devastating than even the most exaggerated projection eight years ago.
Regardless of whether the IRS actually shares the information with particularly suspect countries, our foreign depositors have no reason to wait around to find out.
Foreign depositors rely on the confidentiality and stability of our nation’s banking system as a safe haven from political unrest in their home countries. Although the Treasury Department contends it has no intention of sharing information with radicals like Chávez, the fact remains that the regulation applies to more than 80 countries including Mexico, a country notorious for kidnapping and extortion. European countries are the most likely recipients, but even our European neighbors fail to demonstrate any sort of stability right now. With daily rumors that Greece will withdraw from the European Union with Spain not far behind, there is no telling what could happen next.
The global market for NRA deposits is extremely competitive and highly sensitive. The subtlest of differences among regulatory regimes can affect the flow of NRAs and this regulation is anything but subtle. Depositors on the global level rationalize no differently than the average U.S. citizen trying to pick a bank — constantly weighing safety and convenience.
Despite Washington’s current contentious atmosphere, this issue has garnered bipartisan support in both the House and the Senate. While Sen. Marco Rubio and Rep. Bill Posey, both Florida Republicans, have proven instrumental, they are by no means fighting this alone. Sen. Bill Nelson, a Florida Democrat, has joined Rubio in sponsoring legislation that would prevent these additional banking requirements. U.S. Rep. Gregory Meeks, D-N.Y., who serves on the House Financial Services Committee, is the lead co-sponsor on similar legislation in the House. U.S. Rep. Debbie Wasserman Schultz of Florida’s 20th District, chair of the Democratic National Committee, has been involved too, spearheading a letter to the president signed by all 25 members of Florida’s congressional delegation — Republicans and Democrats. This is evidence of the strong bi-partisan opposition to the IRS rule proposed by the Obama administration.
Even the Ways and Means Subcommittee on Oversight has weighed in, issuing a letter to Treasury Secretary Tim Geithner last week that demanded answers as to why his department refuses to perform an economic impact analysis. Large coastal states like Texas and California have expressed strong opposition as well, proving the point that although Florida’s voice may ring the loudest, this is far from being a single state issue.
No matter how many half-hearted assurances the Treasury Department offers suggesting they will use extreme caution, nonresident alien depositors are not buying it. The Florida Bankers Association will continue to oppose over-burdensome regulation such as this which does nothing more than hurt Florida banks’ ability to lend to the job creators, small businesses.
Alex Sanchez is president and CEO of the Florida Bankers Association.
Read more here: http://www.miamiherald.com/2012/05/24/2816082/new-irs-rule-scares-foreign-depositors.html#storylink=cpy
What Was the Most Tragic Policy Development of 2012?
FATCA gets a mention by Dan Mitchel in this context. Although he is putting DATCA, or the domestic lite version of FATCA first. Although, he surely knows that FATCA begat DATCA.
Deckard1138January 7, 2013 at 5:06 pm
@bubblebustin
Here is a link to Congressman Posey’s web site:
http://posey.house.gov/news/documentsingle.aspx?DocumentID=304786
The particular amendment that Christina refers to is this:
“Posey’s third Amendment, which is based on bipartisan, bicameral legislation he
introduced with Congressman Gregory Meeks (D-NY) to stop the IRS from
implementing new misguided regulations expected to lead to billions of
dollars of capital flight from U.S. banks to foreign institutions.
Despite strong bipartisan requests in both chambers of Congress, the
Treasury Department has refused to withdraw the rule, or at a minimum,
conduct an economic impact analysis on how the regulation would affect
the banks and the economy.
According to Florida’s office of financial regulation, the regulation
could lead to tens of billions of dollars being withdrawn from Florida
banks and moved to overseas accounts. Posey said his Amendment would
delay the IRS rule until unemployment drops to 6 percent. The House
approved this Amendment with a bipartisan vote of 251-165.”
And here’s an interesting transcript of a statement in the House by Democratic Congressman Barney Frank criticizing the Amendment:
http://democrats.financialservices.house.gov/press/PRArticle.aspx?NewsID=1485
It is clear that the repeal of FATCA will absolutely be determined by the fate of the various DATCAs.
Regarding all the talk of DATCA reciprocity in the FATCA IGAs, and the attempt of the IRS to unilaterally require the current DATCA lite of non resident interest reporting from US banks to the IRS:
I think it is important for us to look at the specific language of the IGA. Since February announcement of the FATCA partnership, with UK, France, Germany, Spain and Italy, only the UK poodle has signed. Here it is, with the reciprocity language highlighted. If you haven’t yet read it provisions and some of the fine details, here it is with the sole references to reciprocity highlighted below:
http://www.hm-treasury.gov.uk/d/facta_agreement_tax_compliance_140912.pdf
From the Preamble Whereas:
ARTICLE 6
That simply means if and when Congress votes to approve it! So, there is actually no reciprocity right now, as Moby long ago pointed out. It is FAUX reciprocity. DATCA lite is NOT reciprocity.
When this was pointed out to another correspondent I exchange with, I thought I would post his reply…
To which there was this reply by another….
With final retort
So, now how to get others to understand this, that is the question. Put this in the context of Allison Christians comments at the FATCA Forum, and any thinking person should see what a blatant phony CRAM DOWN the IGA is.
well, I guess Obummer and his cronies are counting on acting purely on administrative authority domestically—-as their IGA’s are agreed in that way without a whimper from Congress.
@Mark Twain…
But they can’t, and know it, and that is why the IGA is written the way it is…. They have to have legislation to make it happen…..
by “pursuing the adoption of regulations and advocating and supporting relevant legislation to achieve such equivalent levels of reciprocal automatic exchange”
Here’s the IRS bulletin 2012-20 reference to the “new” (DATCA lite) regulations that the IRS issued in 2011 and 2012 on the subject of requiring information from US banks.
They will need legislation and Congressional approval for the Full Monty DATCA
http://www.irs.gov/irb/2012-20_IRB/ar07.html
SUMMARY:
This document contains final regulations regarding the reporting requirements for interest that relates to deposits maintained at U.S. offices of certain financial institutions and is paid to certain nonresident alien individuals. These regulations will affect commercial banks, savings institutions, credit unions, securities brokerages, and insurance companies that pay interest on deposits.
Explanation and Summary of Comments
Here the IRS clearly lays out its mission and how FATCA begets DATCA begets GATCA
In many ways, I look at our FATCAnatics now, the same way as I looked Project for a New American Century (PNAC) where in 1998 letter to Clinton the NeoCons clearly exposed their desires for Iraq, but no one took them seriously.Look at the signatures then, and those who came to power with W. Why was anyone surprised when we invaded Iraq?
And….here, with this bulletin, we have a clear road map of the FATCAnatics intentions, and no one in America is paying attention yet again. This is just another pre-emptive strike in a new war, clearly foretold to those that would but read, however, this is NOT ‘Operation Freedom’, it is WOOTE, War on offshore tax evasion. FATCA is the new “Shock and Awe”
Objectives of This Regulatory Action
The reporting required by these regulations is essential to the U.S. Government’s efforts to combat offshore tax evasion for several reasons. First, it ensures that the IRS can, in appropriate circumstances, exchange information relating to tax enforcement with other jurisdictions. In order to ensure that U.S. taxpayers cannot evade U.S. tax by hiding income and assets offshore, the United States must be able to obtain information from other countries regarding income earned and assets held in those countries by U.S. taxpayers. Under present law, the measures available to assist the United States in obtaining this information include both treaty relationships and statutory provisions. The effectiveness of these measures depends significantly, however, on the United States’ ability to reciprocate.
The United States has constructed an expansive network of international agreements, including income tax or other conventions and bilateral agreements relating to the exchange of tax information (collectively referred to as information exchange agreements), which provide for the exchange of information related to tax enforcement under appropriate circumstances. These information exchange relationships are based on cooperation and reciprocity. A jurisdiction’s willingness to share information with the IRS to combat offshore tax evasion by U.S. taxpayers depends, in large part, on the ability of the IRS to exchange information that will assist that jurisdiction in combating offshore tax evasion by its own residents. These regulations, by requiring reporting of deposit interest to the IRS, will ensure that the IRS is in a position to exchange such information reciprocally with a treaty partner when it is appropriate to do so.
Second, in 2010, Congress supplemented the established network of information exchange agreements by enacting, as part of the Hiring Incentives to Restore Employment Act of 2010 (Public Law 111 -147), provisions commonly known as the Foreign Account Tax Compliance Act (FATCA) that require overseas financial institutions to identify U.S. accounts and report information (including interest payments) about those accounts to the IRS. In many cases, however, the implementation of FATCA will require the cooperation of foreign governments in order to overcome legal impediments to reporting by their resident financial institutions. Like the United States, those foreign governments are keenly interested in addressing offshore tax evasion by their own residents and need tax information from other jurisdictions, including the United States, to support their efforts. These regulations will facilitate intergovernmental cooperation on FATCA implementation by better enabling the IRS, in appropriate circumstances, to reciprocate by exchanging information with foreign governments for tax administration purposes.
Finally, the reporting of information required by these regulations will also directly enhance U.S. tax compliance by making it more difficult for U.S. taxpayers with U.S. deposits to falsely claim to be nonresidents in order to avoid U.S. taxation on their deposit interest income.
International Standard for Transparency and Information Exchange
Under the international standard for transparency and exchange of information, which is reflected in the Organisation for Economic Cooperation and Development (OECD) Model Agreement on Exchange of Information on Tax Matters, the OECD Model Tax Convention, and the United Nations Model Double Tax Convention between Developed and Developing Countries, exchange of tax information cannot be limited by domestic bank secrecy laws or the absence of a specific domestic tax interest in the information to be exchanged. Accordingly, under this global standard a country cannot refuse to share tax information based on domestic laws that do not require banks to share the information. In addition, under the global standard, a country cannot opt out of information exchange based on the fact that the country does not itself need the information to enforce its own tax rules. Thus, even countries that do not impose income taxes, and therefore do not have tax enforcement concerns, have entered into information exchange agreements to provide information about the accounts of nonresidents