– from Star Wars: Episode V – The Empire Strikes Back (1980)
February 1, 2013
Two weeks after the release of purportedly final regulations on foreign financial institutions (FFIs) to implement the Foreign Account Tax Compliance Act (FATCA), the predictable (and predicted) chorus of hosannas from compliance vendors is in full swing. Faced with 544 pages of mind-numbing and confusing mandates (up from the draft of “only” 388 pages of last year), vendors literally banking on a FATCA compliance goldmine are renewing their call for FFIs to fall into line and pay up.
While the FATCA compliance vendors are no doubt doing quite well for themselves. It comes at the expense of firms (some of which expect to spend $100 million each to comply with FATCA. They already have dozens of employees solely devoted to that task) – and of course of consumers, onto whom these expenses will be shifted. It isn’t clear that FATCA itself is doing as well.
Why? Because the U.S. Treasury Department’s ability to enforce FATCA directly, on each and every FFI on the planet is highly questionable. Instead, they need the active cooperation of foreign governments who have to be scared into signing intergovernmental agreements (IGAs), whereby the foreign “Partner” (as euphemistically termed in FATCA-talk) will enforce this American law against its own institutions and citizens.
So far, however, Treasury’s actual achievement in obtaining signed IGAs continues at a slow pace, as noted by Nigel Green, CEO of deVere Group. This is a particular problem with respect to major countries in Europe and elsewhere which require at least the appearance of even-handedness in the form of the so-called “Model 1” version of the IGA, which promises data exchange with the U.S. based on “reciprocity.”
Pretense of “reciprocity” exposed
No one who has read “Model 1” IGA (such as the agreement signed with the United Kingdom, unsurprisingly the first country to submit to Washington’s diktat) has any illusions that the supposedly “reciprocal” agreement is anything of the sort.
While pursuant to Article 2(a) of the IGA the non-U.S. “Partner” governments must force their FFIs to provide what amounts to FATCA’s entire spectrum of invasive and expensive-to-collect financial data on “U.S. persons,” wherever they may be resident, the American side promises (pursuant to Article 2(b)) to provide only information on certain interest “Partner”-country residents derive from domestic U.S. institutions.
What is the reason for the mismatch on what is supposed to be a two-way street?
The Treasury Department claims it is providing under Article 2(b) of the IGA only information pursuant to authority they already have under current law. (As will be further discussed below, even that claim is already subject to challenge from some in Congress.)
But that’s OK! Under Article 6(1) of the IGA, the Treasury Department solemnly promises the “Partner” government (here, the UK) that the asymmetry between U.S. and “Partner” obligations is only temporary:
Reciprocity. The Government of the United States acknowledges the need to achieve equivalent levels of reciprocal automatic information exchange with the United Kingdom. The Government of the United States is committed to further improve transparency and enhance the exchange relationship with the United Kingdom by pursuing the adoption of regulations and advocating and supporting relevant legislation to achieve such equivalent levels of reciprocal automatic exchange. [emphasis added]
It would be hard to suggest with a straight face that the “Partner” country officials who negotiated this deal actually believe this commitment any more than the U.S. officials who made it. Chances of implementation and passage of such legislation are slim to none, and they all know it.
But at the same time, it’s important that the public façade of “reciprocity” be maintained that this is a genuine, mutually beneficial exchange.
What’s really going on: It’s one thing for the officials on both sides to acknowledge with a wink and a nod behind closed doors what’s really going on – the capitulation of the “Partner” to a unilateral U.S. demand, backed up with the threat of sanctions. But letting the whole wide world know that is another thing entirely.
In particular, it’s essential that citizens of the “Partner” country be kept in the dark that their government is not only compromising their sovereignty (par for the course) but is sticking them with a massive bill for higher consumer costs and for tax funds used to enforce FATCA domestically – and not even getting much of anything in return.
Recently, however, somebody blabbed:
Although the United States has committed to achieving reciprocity regarding the exchange of financial transaction information under the Foreign Account Tax Compliance Act, domestic banks are not subject to the same reporting requirements as are their foreign counterparts, an Internal Revenue Service official said Jan. 25.
According to Ted Setzer, manager of IRS’s Large Business & International Division, although existing requirements on U.S. banks will provide other governments with similar information required of foreign banks under FATCA, “clearly existing U.S. rules don’t require U.S. financial institutions to provide the exact same information that a foreign institution has to under FATCA.”
Responding to a question about reciprocity, Setzer said the United States had committed to such a concept. However, U.S. reporting rules for domestic banks “are what they are,” and do not require identification procedures identical to those required under FATCA, he said,
“How we get to full reciprocity and how long it takes is something we’ll have to be working on,” Setzer said.
[“Full Reciprocity Under FATCA Is a Work in Progress, IRS Official Says,” Bloomberg Law, 1/28/13]
Some have been critical of Mr. Setzer for having the bad manners to speak something like the truth out where it could be reported to those not familiar with the imbalance solemnized in the IGAs. But putting aside questions of indiscretion and the vague characterization of a time frame for “full reciprocity” – something that clearly isn’t going to happen anytime soon, and probably not ever – it’s nice to have confirmed officially what most people familiar with the details prefer to obscure.
Take the best deal on offer – until we change the deal . . .
Even with this built-in imbalance of obligations, many countries may still regard an IGA as the best protection against direct, extraterritorial FATCA enforcement by the IRS. Indeed, the more burdensome and onerous the regulations, the more terrified FFIs will clamor for their governments to sign an IGA (and push their own citizens and consumers under the bus) to avoid them. This threat was bluntly set out in an unpublished comment by one professional who admits FATCA is “ill-conceived” but still applauds Treasury’s strong-arm tactics, wielding their scary 544 pages as a club.
In retrospect: the parallel track of IGA’s and individual FFI agreements for banks in countries where there is no IGA, really represent a tremendous PR coup for the US Department of the Treasury! On the one hand, the FATCA Regs. which have no substantive applicability to the new procedures under the IGA’s, are a good reminder of how truly miserable the IRS can make your life if you are one of the unfortunate banks in countries where the IGA process has yet to begin. Five hundred and forty four boring detailed pages of what the IRS expects you to do if you indeed have the misfortune of being a bank in a non-IGA jurisdiction which has to enroll and register individually with the IRS to be a withholding agent for the United States government. It is as if the Treasury were saying to the whole international financial community: “just wait and see how tough we can get if you have sign up as a withholding agent. You would be best advised to get after your respective governments to step up and be a player so you can self-certify your compliance with the AML and KYC rules AND NOT have to deal directly with us.” [emphasis added]
Surely, Treasury officials themselves use more diplomatic language when talking with their foreign counterparts. But as with Mr. Setzer, openness is a virtue – in this comment, about the unvarnished threat impelling countries to sign IGAs that are all cost, no benefit.
The Only Benefit: Indeed, about the only real benefit a “FATCA Partner” country can hope to secure in signing an IGA is the prospect of having certain categories of industry or financial products of particular importance declared as a “deemed-compliant FFI or as an exempt beneficial owner” under FATCA, and therefore listed on Annex II of the IGA and relieved of FATCA compliance requirements. This is a significant draw for signing an IGA for a number of countries who want their pension plans exempted from FATCA.. . . which we can do any time we want.
The trouble is, exemption of favored industries of products under an IGA actually is no protection at all.
First, in issuing the final regulations, the Treasury Department already has exempted “certain retirement funds, life insurance and other ‘low-risk’ financial products held abroad, which are not considered havens for dodging taxes, are exempted from reporting their U.S. account holders’ information to the IRS.”
So one might think that the incentive to sign an IGA to protect key industries may be reduced. On the other hand, for some jurisdictions, even the final regulations “confuse rather than clarify” on that point, so some industry is still pushing for an IGA “to provide further clarity” and specifically include “in the annex to the IGA . . . a list of exempt institutions/products.” Or to put it another way, even after issuance of the “final” regulations, vagueness and fear remain Treasury’s key tools for pushing countries into IGAs.
Secondly, an IGA provides no protection at all for one additional, simple reason: they are written on sand. The U.S. unilaterally can cancel the IGA at any time with one year’s notice, for no reason whatsoever, and leave the “FATCA Partner” and its FFIs faced with ‘original FATCA’ and the full 544 pages of regulations! Under Article 10(2):
Either Party may terminate the Agreement by giving notice of termination in writing to the other Party. Such termination shall become effective on the first day of the month following the expiration of a period of 12 months after the date of the notice of termination.
But surely the American side wouldn’t do this . . . would they? After all, some governments believe an IGA binds the U.S. in a manner comparable to a treaty obligation (here, from an unpublished response to a constituent from a working group in an aspiring IGA “Partner” government):
Any intergovernmental agreement would be an extension of the existing double tax agreement and would build on its information exchange mechanism. Once any tax treaty has been signed and is in force, it cannot be changed unilaterally – all changes must be made by mutual agreement or by renegotiation. This rule would also apply to the intergovernmental agreement. [emphasis added]
Such assurance is entirely illusory, for at least two reasons:
First, from the U.S. side, an IGA is considered an “Executive or Competent Authority Agreement,” which emphatically is not a treaty or binding on the U.S. in the same way a treaty is.
Treasury deftly has come up with IGAs – which are not even provided for in the FATCA statute – as a way to cajole other countries into enforcing FATCA on themselves while bypassing Congress entirely.
By contrast, for many “Partner” countries, especially those with parliamentary systems (unlike the U.S.), the IGA must be put through treaty ratification procedures and then legislatively codified in domestic law.
In a nutshell, the “Partner” would lock its obligations into stone, while the U.S. “obligations” amount to the whim of the U.S. Treasury Secretary.
Second, as noted above, the right of the U.S. to terminate the IGA under Article 10(2) amounts to an effective ability to change its terms at will. (Of course the “FATCA Partner” has the right to terminate as well, but as the party seeking protection from the threats of the other party, that’s unlikely.)
Once an IGA is signed, the Treasury Department easily can come back in a year or two and say, “Alright Partner, we want to cut back on our over-generosity on Annex II and require compliance of your precious pension plans and some other FFIs we earlier agreed to exempt. Oh, and we want to lower the reporting amount from $50,000 to $10,000. If (now that you’ve capitulated anyway and recognize who’s in charge around here) you balk at changing the rules or at our revocation of some temporary concessions, you can just go back to Square One and comply directly with the 544 pages of regulations. It’s your choice – Partner.”
Any guess which way the “Partner” will jump?
Congressional action could be fatal to IGAs – and to FATCA too
With Treasury’s choosing the Executive Agreement ploy for the IGAs, in large measure to deal Congress out of the equation, it might be supposed there’s no danger from that quarter. That may not be the case, however.
It must be remembered that for several years Treasury already has been engaged in a running gun battle with some key members of the House Committee on Ways and Means, notably Oversight Committee Chairman Charles W. Boustany Jr., M.D. (Republican, Louisiana) and Congressman David G. Reichert (Republican, Washington) over requiring U.S. banks to report interest on accounts of non-resident aliens (NRA).
The argument over the authority and impact of NRA (Non Resident Alien) interest reporting precedes Treasury’s efforts to pressure other countries into FATCA IGAs. But the two issues dove tailed last year, notably with publication of an IRS bulletin citing as “authority” for faux-reciprocal reporting to “FATCA Partner” governments under the IGA the same disputed regulatory and statutory application claimed by the IRS to justify NRA interest reporting.
In a significant push-back from industry, in December 2012 the American Bankers Association (ABA) wrote to the Treasury Department, stating that that powerful industry group – . .
strongly objects to the NRA reporting automatic exchange provision included in the U.S.-Mexico IGA. Moreover, since there is no indication or evidence suggesting that the Treasury conducted the required due diligence for entering into such an automatic exchange relationship, we strongly recommend that Treasury reconsider this automatic exchange relationship with Mexico.
Of course the likelihood that the Treasury Department will reconsider information exchange with Mexico or any other country dragooned into signing an IGA is about as great as chances for Congress to enact legislation providing for fully reciprocal information exchange: virtually zero. However, that doesn’t mean that Congress can’t or won’t consider measures to block even the limited data promised to “Partner” countries under the “Model 1” IGA.
These concerns about NRA interest reporting and mandates on U.S. domestic industry under the IGAs are still short of moving toward FATCA repeal – so far. But they do show how out of touch with political realities in Washington are Treasury’s purported commitments to prospective “Partner” governments.
Simply put, as bad a deal for “Partner” countries the “Model 1” IGA already is on its face, Treasury cannot be sure of keeping its promise of even the meager “reciprocity” spelled out in it as Congress increasingly focuses on FATCA costs boomeranging back towards the US.
What needs to be done next
As accurately stated in the ABA letter,
“there is no indication or evidence suggesting that the Treasury conducted the required due diligence for entering into such an automatic exchange relationship” with Mexico.
Indeed, there is no indication or evidence any such due diligence was performed at any step along the way for FATCA at all, either before its enactment in 2010, or for the impact of the 544 pages of regulations on the U.S. and global economy, or on the costs and effects of the IGAs.
Instead, there is every indication and evidence of the exact opposite: That FATCA will not succeed in policing “tax cheats” or raising significant revenues but will trigger a host of deleterious consequences. If that’s not “the worst law most Americans have never heard of,” what is?
As a bad deal for all concerned, the IGAs should also be seen as a “weak link” for undermining FATCA and working for its repeal before its worst features go into effect. For that to happen, as Center for Freedom and Prosperity President Andrew Quinlan has written,
“it’s time for more Americans to hear about FATCA and the damage it is preparing to do – if not already doing – to the world economy.”
This means that foreign governments need to stop helping to save FATCA from its own fatal flaws by signing IGAs that cannot provide promised protection for cherished institutions. Instead, they should tell Treasury in clear and principled terms that they will not allow their domestic firms to comply with FATCA, and that they’re prepared to respond with WTO and other remedies if IRS tries to apply sanctions (notably FATCA’s 30 percent withholding threat for “recalcitrance”).
Finally, firms faced with wasting untold millions of dollars to comply with FATCA need to stop pressing their governments to sign IGAs and instead help get rid of it by supporting the repeal campaign in the United States.
Source: http://www.repealfatca.com/index.asp?idmenu=4&title=News&idsubmenu=112<
If those video links don’t appear just search YouTube with a copy and paste of the titles.
Christophe just posted this, and it speaks to the issues that James has been posting about…
Exclusive: Foreigners’ accounts in U.S. banks eyed in tax crackdown
“The Obama administration may soon ask Congress for the power to require more disclosure by U.S. banks of information about foreign clients’ accounts to those clients’ home governments, as part of a crackdown on tax evasion, sources said on Monday.“
So Obama is going to ask congress to vote laws to allow reciprocity to happen. Let’s see how the banking lobby is going to work…
And that was interesting too:
“China has been publicly dismissive of FATCA, but it is talking with U.S. officials behind the scenes, sources said.”
“France and Germany “have been asking for something more like full reciprocity,” said Jonathan Jackel, a lawyer with the law firm of Burt Staples & Maner LLP in Washington, D.C.“
“The Texas Bankers Association is considering a lawsuit against the government to stop accountholder information sharing with Mexico, said Eric Sandberg, the group’s president“
And why just with Mexico?
And the article ends with
“The United States should be moving toward full reciprocity,” said Georgetown Law School Professor Itai Grinberg, a former Treasury official, adding it would be “deeply hypocritical” of the United States to ask for U.S. taxpayer information “without offering some kind of reciprocity.“
It’s getting interesting. Let’s count the points
@ Jim Jatras,
Thanks for these ideas. But for Canada, it still boils down to legislation. If the government calls the IGA a treaty, it’s my understanding parliament has to ok that. I don’t think they can get away with just ignoring it and hoping everybody will forget about it. At least the Green Party is bringing it out in the open and we can keep hammering away…And we can always hope that eventually, the rest of Canada will eventually figure out they are paying for it and that they will be outraged enough to make a fuss. Hopefully Flaherty et al, would never consider setting up a compliance department. Geez……
You gotta hand it to the Germans, it makes so much more sense to go at it that way. 🙂
@Mr Jatras, I have a question regarding this quote from the article:
“The Obama administration may soon ask Congress for the power to require more disclosure by U.S. banks of information about foreign clients’ accounts to those clients’ home governments, as part of a crackdown on tax evasion, sources said on Monday.“
Does that mean that the administration is going to ask congress to pass laws to force the banks to do that. Or are they going to ask congress for the authority for the treasury to regulate the banks (which would be similar). I guess my question is in the end, could additional regulations for the banks be an executive order that do not require Congress’ decision?
From the Register article:
So it’s OK for the US to impose its laws extraterritorially but when the EU tries it, the US threatens a trade war – such naked hypocrisy!
Christophe: Just Me found this
http://www.4-traders.com/news/Exclusive-Foreigners-accounts-in-U-S-banks-eyed-in-tax-crackdown–16009052/?goback=.gde_3731046_member_211072974
Exclusive: Foreigners’ accounts in U.S. banks eyed in tax crackdown
02/04/2013| 06:58pm US/Eastern
The Obama administration may soon ask Congress for the power to require more disclosure by U.S. banks of information about foreign clients’ accounts to those clients’ home governments, as part of a crackdown on tax evasion, sources said on Monday
The bank lobby won’t let it happen.
And if you live in the USA, no other country taxes its citizens anyway.
I posted the following at MapleSandbox while the IBS site was down.
I
wrote to my (PC) MLA asking what the government is going to do to
“protect us from FATCA”. Here is the response that I received from an
“executive assistant”. It almost sounds like they are doing something
other than the “model 1″ or “model 2″ IGA that the IRS has detailed. Am I
reading to much into this statement?
— snip — snip —
Thank you for your recent email to the Hon. Diane Ablonczy.
In regards to the Foreign Accounts Tax Compliance Act (FATCA), our
government is aware of this law. Negotiations are being held between
Canada and the United States on an agreement to improve cross-border tax
compliance. Our Government has made important progress and is nearing a
conclusion on this issue to address the concerns of Canadians who hold
dual citizenship. These honest, hard-working Canadians are not the real
target of FATCA.
The Government of Canada continues to work with the United States on
finding a solution that treats Canadians fairly and appropriately.
The Government of Canada has received input from many individuals and groups in relation to the implications of FATCA.
If you would like to offer additional comments concerning the negotiations,
please send your views to:
Department of Finance
17th Floor, East Tower
140 O’Connor Street
Ottawa, Canada
K1A 0G5
For further information contact:
Kevin Shoom
Business Income Tax Division
613-992-2980
For more information regarding U.S. citizenship, please visit:
http://travel.state.gov/law/citizenship/citizenship_782.html
@ WhatAmI,
Re response:
Is the “agreement” in above reference to the IGA (intergovernmental agreement) that Canada may be signing with the US? Or, is it something entirely different. And, when will we know? Thanks, WhatAmI.
***********
This may explain Ablonczy’s better following of this issue than most MP’s:
From Wikipedia:
RE: Diane Ablonczy — I searched the internet last night to see if she had either relinquished or renounced her US citizenship but couldn’t find anything definitive. There is of course mention of her being born in the USA but I also read that she was NOT a dual citizen. Swearing an oath of office to enter parliament would have been enough to disconnect her from the USA. Besides she’s a lawyer so she probably took care of that pesky little place of birth issue years ago. I hope she can appreciate what it’s like for duals in Canada who are sliding into a foggy FATCA future and can only wish they had had the foresight to slip out of the grasp of the USA many years ago like she did.
As for what kind of arrangement Canada is negotiating with the USA we’ll have to wait and see. Right now the USA seems to be saying take a Type 1 IGA or Type 2 IGA because with no IGA you will have to take your 30% flogging. I think they are worried that if IGAs run into Type 3, 4, 5, etc. the gig is up and their house of FATCA will crumble.
But it no IGA and 30% flogging: better causes of action in court, no?
Since we are up and running there again, there was a new good article by Andrew Quinlan of Center of Freedom and Democracy…
US Relying on the Ignorance of Foreign Governments to Propel FATCA Fiscal Imperialism
It concludes with this statement.
@ Just Me
Andrew Quinlan hit another home run with that article. I’d like to
print hundreds of copies of it, ball those pages up, load them into an
APAW (Automatic Paper Assault Weapon) and plaster our Canadian
parliamentarians with those words of wisdom. That being impossible, I’ll do some more e-mailing.
I especially like this: …..”The Texas Bankers Association is considering a
lawsuit against the government to stop accountholder information sharing
with Mexico, said Eric Sandberg, the group’s president.”….
….”The United States should be moving toward full
reciprocity,” said Georgetown Law School Professor Itai Grinberg, a
former Treasury official, adding it would be “deeply hypocritical” of
the United States to ask for U.S. taxpayer information “without offering
some kind of reciprocity.”” http://www.reuters.com/article/2013/02/04/us-usa-tax-fatca-idUSBRE91312W20130204
The more press that ‘DATCA’ (term coined by Just Me) gets, the more scrutiny the IGAs get. The more faux ‘reciprocity’ the US pretends to offer, the more it makes non-US country signatories into obvious fools.
And what about the supposed ‘authority’ that Treasury and the IRS are using to enter into these IGAs? If they have all the authority they need, in order to offer even fake reciprocity from US domestic banks, then why is Obama to ask Congress for more?
See: “…….The Treasury Department has acknowledged that
more information sharing would be appropriate. The completed FATCA pacts
include commitments “to pursue equivalent levels of reciprocal
automatic exchange in the future,” according to an October 2012 letter
from Treasury Assistant Secretary for Tax Policy Mark Mazur to members
of Congress.”…..
http://www.reuters.com/article/2013/02/04/us-usa-tax-fatca-idUSBRE91312W20130204
‘Obama Administration to Ask for Added Authority to Force FATCA Disclosure: Report’
….”The Obama administration is preparing to ask Congress for authority to
demand more disclosure from U.S. banks to foreign governments about the
American accounts of their citizens, Reuters reported on Tuesday.”…
http://www.americanbanker.com/issues/178_25/obama-ask-for-added-authority-to-force-fatca-disclosure-1056471-1.html
@Christophe
Re: “@Mr Jatras, I have a question regarding this quote from the article:
“The Obama administration may soon ask Congress for the power to require more disclosure by U.S. banks of information about foreign clients’ accounts to those clients’ home governments, as part of a crackdown on tax evasion, sources said on Monday.“
Does that mean that the administration is going to ask congress to pass laws to force the banks to do that. Or are they going to ask congress for the authority for the treasury to regulate the banks (which would be similar). I guess my question is in the end, could additional regulations for the banks be an executive order that do not require Congress’ decision?”
Right now, the Treasury Department claims it has statutory authority to require (via regulations issued by Treasury) U.S. banks to report non-resident alien interest to the aliens’ governments. That claim — which has been under dispute from Congressmen Boustany, Reichert, and others for some time — underlies Treasury’s claim to be able to deliever to countries like UK (and presumably in the future, they hope, Canada) that have signed the “reciprocal” Model 1 version of the IGA the information promised by the U.S. side in Art 2(b).
This information — which Treasury’s ability to deliver is already questionable — still falls far short of the information the non-U.S. government promises to provide from its financial firms under Art. 2(a). This information is essentially the same as what FATCA demands of FFIs under the 544 pp of regulations. But even Treasury doesn’t pretend they have current legal authority to issue regulations require comparable information from the U.S. side. That’s why the Treasury also promised in Art. 6 of the Model 1 IGA that it would seek “equivalence” in information exchange at some unspecified future date. I had assumed they would not ask for that for a long time, if ever. It seems, though, they are getting ready to ask for it soon, which is what that passage you quote refers to. We haven’t seen the details yet, and don’t know when we will, but it should be a step closer to “full reciprocity,” which I have to guess at least some governments are demanding before they sign an IGA. But after some encouraging meetings up on the Hill yesterday (no details can be made public yet, but soon), I’m pretty confident they won’t get it.
Thanks for the update, Jim Jatras. Look forward to your further updates. No other government should sign an IGA with the US if the US does not provide clear, legislated evidence of reciprocity — should not submit to the bullying and the deceit in so called “agreements”.
Well, we don’t want FATCA even if the US does provide full reciprocity, right?
Correct — as I see it, refusing to sign IGAs without full reciprocity might be a way to kill FATCA. Other countries need to quit being submissive and stand up to the US bullying. Let FATCA die with blowback from the US domestic banks and within their homeland boundaries.
@WhatAmI
Right, we don’t want FATCA, and maybe if we insist on full reciprocity, we won’t get it.
*I’ve just e-mailed the link to HM Treasury, suggesting they have a read.
A modest question:
Reciprocity, what’s in it for France (or Germany, or whoever)?
Let’s suppose that France, to take an example, negotiates full reciprocity for the exchange of tax information with the US. (That’s a big suppose.)
They will then indeed get information on financial accounts held in the US by residents of France. These might be all sorts of accounts, many of them quite innocent, even if unreported. The resident of France who is seriously wanted to evade taxes will move money not to the US, but to a tax haven, like Switzerland (favorite of continental Europeans), or the scattered relics of British empire, such as the Cayman Islands. An account in the Cayman Islands, for instance, can be used to make investments in the US.
Now here’s the rub: even if the Cayman Islands become FATCA compliant, they will be reporting only accounts held by “US persons”. Accounts held by French (or German or whatever) persons are exempt. The only way French tax authorties can learn about such accounts is to pass their own version of FATCA (“French FATCA”) and attempt to impose it upon the world. (Good luck.)
If I am correct, “reciprocity” may save face, but it will not help “partner countries” crack down on tax evasion by their own citizens and residents.
Have I missed something here?
Many thanks.
Check your tax treaty and see how reciprocity works
Sweden Tax Treaty
http://www.irs.gov/Businesses/International-Businesses/Sweden—Tax-Treaty-Documents
ARTICLE 1 Personal Scope
4. Notwithstanding any provision of the Convention except paragraph 5, the United States may tax its residents (as determined under Article 4 (Residence)), and by reason of citizenship may tax its citizens, as if the Convention had not come into effect.
Meaning, that USA can do whatever it wants to its citizens when they live in your country. This is US reciprocity.
@ Mark Twain
Re; “….and by reason of citizenship…… ”
The main problem is right there. And since we have NO control over any further changes to how the US defines and enforces the deemed status of ‘citizen’ taxpayer, (retroactive or otherwise), it confirms for me that it is not just FATCA, but the essential underpinning – extraterritorial application of US tax (and other) laws to whoever it feels like making a ‘citizen’/’taxable person’ that is the crux of it. Of course, problematic also to that part of the treaty is the US treating ex-greencard holders who are no longer US ‘residents’, have never been US citizens, and whose permanent resident rights have expired, equivalent to ‘citizens’ in respect of lifelong taxation and financial reporting.
@NorthernShrike says
Yes, you have missed the bigger mission. That is to set up a framework of standardization on data collection way beyond the Know your Customer (KYC) rules so that we can proceed from FATCA to a global GATCA of automatic Tax DATA exchange.
When I talk about standardization…. I reference these types of articles..
http://bit.ly/XMvJ2W
http://bit.ly/XzYSQE
That is the OECD mission, and that is why they are so enthusiastic about FATCA, as it is the ‘tip of the Spear’ in this larger War for FACEBOOK Banking, with total assets and transaction transparency.
Have been trying to keep articles about the concept posted under this GATCA thread.
http://isaacbrocksociety.ca/2012/03/27/a-global-fatca-in-the-future/