Mexico, US Sign FATCA Agreement
by Mike Godfrey, Tax-News.com, Washington
23 November 2012
On November 19, 2012, in Washington, the Mexican Undersecretary of Revenue, José Antonio González Anaya, and the United States Assistant Secretary for Tax Policy, Mark J. Mazur, signed a government-to-government agreement for the bilateral implementation of the Foreign Account Tax Compliance Act (FATCA).
FATCA was enacted by Congress in March 2010 and is intended to ensure that the US tax authorities obtain information on financial accounts held by US taxpayers with foreign financial institutions (FFIs). Failure by an FFI to disclose information would result in a requirement to withhold 30% tax on US-source income.
FFIs across the world have all expressed concern about the legislation, particularly the changes to their systems it will entail, and the penalties that will ensue in case of non-compliance. Those concerns led the US Treasury to pursue government-to-government frameworks for implementing FATCA.
A government-to-government agreement, as signed between the US and Mexico, does not contain any exemption from FATCA, but, instead, a model for information sharing is offered based on existing bilateral tax treaties and allowing FFIs to report the necessary information to their respective governments rather than to the Internal Revenue Service.
The FATCA agreement has taken two years to negotiate between the two governments, and, while a copy has not yet been released, is said to be a significant improvement in the mechanisms for the exchange of banking and other financial information between the two countries.
In addition, after the signing of the agreement, the Mexican government believes that it is placed amongst the countries with the best practices for the exchange of information, as driven by the Organization for Cooperation and Economic Development and the G20.
@Christophe, I agree that FATCA is a monstrosity and the IRS is way too aggressive (even a congressman’s assistant told me that the IRS is “overzealous”). For some reason I don’t quite understand, the US has a tradition of being excessively punitive, not just regarding taxes, and not just the government. Apparently it’s part of American culture, and it’s something I don’t share at all.
Thank you for contacting your new senator. If you don’t get a satisfactory response, and would like to meet in person, perhaps you could wait until the senator has an official website (with senate.gov). Most of them have a link where you can make a meeting request. I’ve been able to meet with congressmen’s assistants this way even though I’m not their constituents, so I suppose you would have no problem.
@badger, Under the current rules, bank accounts of nonresident foreigners are not reportable at all, even if they have interest. There is a plan to report the interest (but not tax) if it’s over $10, but this has not been implemented yet due to pressure from the very banks in states like Florida and Texas, which you mentioned. From what I understand, their concern is mainly the cost of implementation and that foreigners will withdraw their deposits if US banks report the accounts to their countries of residence. I don’t think they are afraid of losing deposits if the interest is taxed by the US.
I suppose many foreigners who live in unstable countries have US bank deposits with no interest just for security, but many also invest in the US. I have to do some reasearch to find the numbers but I think foreign investment in the US is huge, and most of it is not taxed by the US. If the US government is really desperate for revenue, why doesn’t it tax this income?
@Shadow Raider, the Florida banks and Florida politicians mention the flight of the depositor capital and decrease in liquid assets more than the burden of administration or reporting:
……”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…”
Read more here: http://www.miamiherald.com/2012/05/24/2816082/new-irs-rule-scares-foreign-depositors.html#storylink=cpy“
……”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…”
Read more here: http://www.miamiherald.com/2012/05/24/2816082/new-irs-rule-scares-foreign-depositors.html#storylink=cpy
from http://www.miamiherald.com/2012/05/24/2816082/new-irs-rule-scares-foreign-depositors.html“
Maybe they don’t try to tax it because those depositors are supposed to be foreign non-residents? Or because they couldn’t offer the inducement of secrecy, and then try to collect from non-residents in the very countries that the money came from? And what enforcement mechanism would the US have had to collect from foreign non-residents abroad? They could withhold directly from the accounts, but then the depositors could just go elsewhere.
The article goes on to say: ……..”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.”
@badger, You’re right. The sentence you copied sums it up: foreign depositors have no reason to wait around to find out. What I’m trying to say is that reporting is different from taxing. Everyone is so obsessed with reporting and transparency that they forget that the real purpose is to collect taxes. If taxes are paid, governments shouldn’t care about how much money people have in their bank accounts anywhere.
Yes, I’m suggesting that the US could withhold tax from the interest at a flat rate, like it already does for a few types of income of nonresident foreigners. It wouldn’t be practical nor sensible to require nonresident foreigners to fill in US tax returns just for passive income (I think it’s already unnecessarily complex that they have to fill in a 1040NR for active income). Again, if nonresident foreigners are supposed to pay tax to their countries of residence on their US income, and can use US tax as a foreign tax credit, it doesn’t make sense for the US not to tax it. This would be a correct way for the US to assert its sovereignty, inside its borders.
@Badger
What all this confirms, of course, is that the world’s biggest and most sophisticated tax haven is the US. I wonder how long it’s going to take all those US politicians keen on going after expats to get their “fair share” to realize that they’ve got a home-grown problem that other countries might want to take a run at.
Probably not in my lifetime.
It looks like it’s not just the US. Canada, UK and most other developed countries also don’t tax interest of bank accounts of nonresidents. Developing countries like Brazil and Mexico do. I don’t understand, shouldn’t it be the opposite?
http://www.cra-arc.gc.ca/tx/nnrsdnts/ndvdls/nnrs-eng.html
http://www.hmrc.gov.uk/cnr/faqs_general.htm#7nr
http://www.kpmg.com/CZ/cs/Hidden/Documents/KPMG_Tax-legal-implications-cross-border-cash-management.pdf
http://brazilianchamber.org.uk/committees/article/international-aspects-brazilian-taxation
http://www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/Tax/Taxation%20and%20Investment%20Guides/2012/dttl_tax_guide_2012_Mexico.pdf
@ALL, please immediately read this article in full. http://triblive.com/news/allegheny/2825138-74/tax-united-states-secrecy-money-countries-havens-accounts-foreigners-haven#axzz2DSLVojUJ Those making presentations to the Finance Department against FATCA especially, because this is the smoking gun of evidence that the US knows that it is a tax haven, US banks deliberately use the guarantee of secrecy to profit, the IRS knows they are doing that, and so do US politicians.
@Arrow, re: “I wonder how long it’s going to take all those US politicians keen on going after expats to get their “fair share” to realize that they’ve got a home-grown problem that other countries might want to take a run at.“
Have a look at this: ‘U.S. ranks among top financial secrecy havens’ by Lou Kilzer and Andrew Conte
…….A regulation taking effect in January requires banks in the United States to report earnings by foreigners with accounts here.
But the rule exempts wide swaths of people,
leaving out residents of countries that do not have tax information exchange agreements with the United States and — more significantly — those who hide money through anonymous shell companies, incorporated
here or abroad”…….”Banks have no obligation to know customers’ tax situations, said Grisel Vega, president of the Florida International Bankers Association.
And that’s just as it should be, she says.
“The customers have the responsibility to
file whatever returns they have to under their individual country
requirements,” Vega told the Tribune-Review. “I don’t think that makes the United States a tax haven. It’s free enterprise. You open it, and you have the responsibility.”………”The banking association estimates foreigners pulled $300 million out of its 70 member banks in the first month after the IRS finalized the rule in April….
“Nonresident aliens own as much as 90 percent of holdings at some U.S. branches of foreign-owned banks, Florida’s former banking Commissioner
J. Thomas Cardwell told IRS officials last year. Banks don’t want to lose the foreign holdings, which generate income and can be loaned out, and some might fail if U.S. rules get tougher, he predicts….
“That would be an argument, that these foreign countries need to enforce their own tax regimes…………….
“Secrecy was meant “to encourage the flight of capital to the United States. … It’s good for the United States.”..
Sanchez contends it’s not the business of the IRS or American banking officials to help other countries catch criminals. “I’m not the world’s policeman,” he said”…..
Good work, badger. I will delve into it more a little later.
In the meantime, Source: Tax Justice Network* http://triblive.com/csp/mediapool/sites/dt.common.streams.StreamServer.cls?STREAMOID=WX9cBb6Miqr9o6RbiO225JM5tm0Zxrvol3sywaAHBAmBaA0_Zmzd57KJJKMlneGiE0$uXvBjavsllACLNr6VhLEUIm2tympBeeq1Fwi7sIigrCfKm_F3DhYfWov3omce$8CAqP1xDAFoSAgEcS6kSQ–&CONTENTTYPE=application/pdf&CONTENTDISPOSITION=ptr-gx-offshorepdf-111112.pdf
* http://en.wikipedia.org/wiki/Tax_Justice_Network / http://www.taxjustice.net/cms/front_content.php?idcatart=103
If all countries in the world only taxed income inside their own borders, in the same way for everyone and regardless of residence or citizenship, things would be so much simpler and this whole discussion would not exist.
I seem to recall once reading that the original purpose of QI agreements (FATCA is QI on steroids) was to enable the US to deal directly with the foreign banks in order to avoid having to deal with foreign governments which would inevitably insist upon reciprocity of information.
It seems like reciprocity is no longer a concern for those promoting FATCA. If reciprocity was a concern, they would not be so eager to strike IGAs, unless of course the IGAs are one-sided, which is actually par for the course for most treaties and agreements with the US.
@Shadow Raider:
That would make far too much sense and be entirely too fair for most governments to accept.
For anyone who happens to be in Puerto Vallarta on Friday, Intercam is running a free FATCA for Dummies presentation session, including a “complimentary charming note book and pen” (a complimentary revolver and a single bullet would probably be more appropriate).
Shadow:
the US has a tradition of being excessively punitive, not just regarding taxes, and not just the government. Apparently it’s part of American culture, and it’s something I don’t share at all.
Spot on! This is very true.
In response to what you said about not taxing interest rates from bank accounts: Maybe not large hedge funds. But to even open a bank account here, there has to be a solid reason, example: a connection to the country, residency, citizenship, etc.. otherwise, they won’t open even a simple checking account for you. Sometimes I hear about a rogue bank manager that open accounts for people with a tourist visa, but this is rare. Taxes on interest are withheld and remitted to the government by the banks. I think even non-resident Brazilians cannot escape from this because what is generated in Brazil is taxed by Brazil. Just ask MarkPineTree.
On the question of the US (and the City of London) as a tax haven, I recommend:
Nicholas Shaxson, Treasure Islands: Tax Havens and the Men Who Stole the World. 2011. Published in paperback by Random House.
Full text of the agreement is available at: http://www.slideshare.net/fiscalito_com/acuerdo-fatca-mexicoeeuu
It is also available on the IRS website. Personally, I avoid accessing the IRS website as I figure they might be able to trace visitors.
Meet FATCA agreement and avoid problems
Mexico FATCA Compliance Complex telling Mexicans about FATCA
*Once FATCA passed, the IRS and Treasury overstepped their bounds and actually made international law without getting the thumbs up from Congress. They can’t legally make agreements (IGA’s). They are delving into the realm of international law and don’t have the legal power to do so as we can see by the Amendment that passed the house brought by Senator Posey of Florida. At this moment, that deal with Mexico equals nothing. So the Mexicans have to follow the FATCA rules or suffer 30% witholding. Meanwhile Congress clearly stated Mexico will get zero in return. The US comes off looking like a hypocrite and also, governments around the world are starting to ask if the left hand knows what the right hand is doing in regards to basic governance of the United States. And already global banks have shut out Americans losing billions in perfectly legal deposits from legal residents, mostly dual citizens who are law abiding. Meanwhile the US doesn’t lose one penny. We come off looking like stupid bullies on a school yard. Actually, that’s and understatement….we are beginning to resemble the Third Reich, hunting down our dual and ex citizens like animals and under severe threat. It’s scary.
A woman I know who recently renounced her citizenship made an interesting point. She said that in her opinion, the government is being run by little children who are insulated in DC. She said that of course our banks in the South launder drug cartels money. Everyone knows that. There are bad people in this world. We haven’t beat the cartels, but we have used their money for good works (loaning it to families for mortgages, building roads and schools – the list goes on and on). So, yes, there are evil people in the world and there always will be. But it’s better to have some benefit from evil, than to send the evil-doers money someplace else. The Obama administration watched too many Spiderman movies and Robin Hood movies of the week. They are living in a childrens fairytale and they are going to be the cause of not billions but trillions leaving the US. And thats a good thing. It will teach those losers about reality and maybe scare the American people into growing a brain (although that is unlikely).
@Christina
I haven’t seen the Posey Amendment. Oddly enough he his my representative although I moved to Canada at 12 years of age. Shouldn’t the IGA with Mexico be a no-go without reciprocity, even though any reciprocity the US agrees to has an escape clause anyway?
@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.
@Deckard
Thanks, I hadn’t realized it had passed, although I can’t see how it would stop a capital flight with the threat of reciprocity at bay only as long as unemployment stays above 6% high.
Barney Frank videos. Not good.
@marktwain
I’d rather put pins in my eyes.
@bubblebustin…
Of course, this went no where in the Senate, so only a moral victory with no legislative mandate to stop the IRS imposing is DATCA lites.